Momentum for U.S. IPOs is picking up, as a growing range of firms are attracting buyers — supporting Goldman Sachs (NYSE: GS)’s call that the best is yet to come for the new issues market.
Eight companies debuted on U.S. exchanges last week, raising more than $2 billion in the busiest week since September, according to data compiled by Bloomberg. Even better, the businesses that raised over $100 million are trading above their offer prices, with Kyverna Therapeutics Inc. (Nasdaq: KYTX) and American Healthcare REIT Inc. (NYSE: AHR) the best performers.
Not all candidates made it out the gate, however. Insurer Fortegra Group Inc., a subsidiary of Tiptree Inc. (Nasdaq: TIPT), pulled its deal citing market conditions.
Fundamentals for a revival of initial public offerings have generally been strong. The three key U.S. equity indexes are trading at record highs. Investors are becoming more comfortable with the Federal Reserve’s campaign to cut interest rates this year. And overall volatility remains subdued.
Given those healthy conditions, IPO activity is expected to continue to improve this year, Goldman Sachs said in a report last week. The firm’s gauge of the overall environment for public offerings has surged to a nearly two-year high of 119, well above the 100 level that indicates typical conditions for issuance.
Solid returns in the early going this year bode well for Goldman’s call, as the market for IPOs revives after a two-year standstill. The average return for companies that raised more than $10 million and debuted last week was 4.4 percent, building on a 14 percent rise for the broader class of 2024 until then, Bloomberg data show. Companies raising between $100 million and $500 million have outperformed their smaller and larger counterparts.
Kyverna headlined last week’s drug industry offerings, with strong debuts for American Healthcare REIT and Mexican discounter BBB Foods Inc. (NYSE: TBBB) also showing investors are willing to expand their scope of buying. Kyverna sold shares above a marketed range as BBB Foods priced its IPO at the top of an elevated range before they both rallied. American Healthcare priced its $672 million IPO at the bottom of its marketed range, before climbing 10 percent.
“This year you’re seeing more activity across a broader range of companies than we have the last few years,” said Dan Polsky, co-head of syndicate at William Blair, adding that investors want to meet with private companies that are considering going public, but “the bar is high.”
That was the case for Fortegra which canceled its offering after meeting investors on the road, with owners Tiptree and Warburg Pincus LLC citing the high value they place on the firm and broader market conditions as the drivers of the canned deal.
The recovery is playing out with money managers standing firm on valuations and being diligent with what they buy.
“Investors are evaluating companies on their fundamentals and aren’t treating IPOs as a homogeneous asset class which is healthy,” Polsk said. When there’s not a flood of issuers, “every one that prices receives a lot more attention and there tends to be an extrapolation that’s maybe more than is deserved.”
Despite the improving backdrop, the flow of IPOs will slow to a trickle over the coming weeks as would-be debutants get their full-year financial statements audited. The lull will set the stage for hotly-anticipated companies like Reddit and Lineage Logistics, which are targeting IPOs in the coming months, Bloomberg News has reported.
