Can Arm and Instacart Resuscitate the IPO Market?

Q2 2023 marked the sixth consecutive quarter of lower year-on-year IPO activity. The April through June stretch was the weakest global go-public count since early 2016. The third quarter currently has 41 deals announced through September 11, vs. a total of 46 for Q2, but with three weeks left in the quarter, we could see the first YoY increase in activity in a year-and-a-half.

The most anticipated IPO of the second half of the year, Arm Holdings, will begin trading on Thursday (Sept 14). Many investors are hopeful that this could lead to a pick up in dealmaking, as has already been seen to some degree in M&A activity. 

Total IPO Announcements

Source: Wall Street Horizon

The AI boom, in large part, is responsible for the bullish attitudes around IPOs, but there is also renewed fear of rising rates that could rain on the parade. Markets spent much of last week lower due to concerns that the Fed will continue to raise rates as inflation remains stubbornly high. 

Two Widely Anticipated IPOs in the Offing: Arm Holdings & Instacart

Arm Holdings is set to go public on Thursday, September 14, with a price of $47 - $51/share and $95.5M shares offered, putting total potential proceeds around at nearly $4.9B on the high-end. That would result in a valuation of $54.5B. 

Instacart filed for its IPO earlier today, setting an offer price of between $26-$28/share. Proceeds could top $600M, giving the company a valuation at $9.3B on a fully diluted basis. They are expected to begin trading on the Nasdaq next Wednesday, September 20. 

Other exciting upcoming offerings include Klaviyo (NYSE:KVYO). The Boston-based tech company provides a marketing automation platform for email and SMS marketing. They are currently anticipated to go live on September 19 at an offer price of $25 - 25/share on 19.2M shares. On the high end, proceeds raised would fall just short of $500M. 

Proceeds over $500M Remain Rare

While there is some renewed hope on the IPO front, especially with the prior mentioned filings, the massive listings we got used to seeing in 2020 and 2021 have dried up significantly. 

IPO Proceeds over $500mln

Source: Wall Street Horizon

Arm and Instacart fit the bill, and there are other rumored IPOs that may hit later in 2023 or 2024 that could also fall into that category, including Databricks, Stripe, and Chime.

M&A Wavering in Q3 After a Strong Q2

After posting YoY declines in Q4 2022 and Q1 2023, global M&A deals ticked higher in the second quarter. With only three weeks left in Q3, current deal activity is only half of what it was in Q2. However, there have been some exciting deals announced this quarter, especially within consumer staples. 

On August 7, Campbell Soup Company (NYSE:CPB) announced they would be acquiring Sovos Brands, owner of Rao’s sauces, for $2.33B in cash. In addition, on September 11, J.M. Smucker agreed to buy Hostess Brands (NASDAQ:TWNK) for $5.6. 

Total M&A Announcements

Source: Wall Street Horizon

The Bottom Line

The IPO market is part art, part science. Up-and-coming companies, and even some established firms, want to be sure there is ample demand for their shares before committing their stock to the secondary markets.

Private equity, meanwhile, is always looking for green shoots to signal that their investments pay off, and investment bankers are always chomping at the bit to underwrite quality deals.

As the IPO situation turns modestly more sanguine after a dearth of activity, investors should keep on top of the latest key events among newly listed companies.