People are seen on Wall Street outside the New York Stock Exchange. US initial public offerings should get a boost this week from as much as $5.5bn in first-time equity issuance that could be the opening investors have been clamouring for during this latest new listings slump.
The up to $4bn deal for Lineage Inc, a temperature-controlled storage and logistics real estate investment trust, headlines what could be the most crowded slate for new issues since September. The typical bread-and-butter IPOs by tech firms that are growing faster than public peers have been virtually nonexistent, as companies sop up private dollars and avoid the risks of launching shares into this market. So bankers and Corporate America are hoping this latest action sparks some momentum.
“The backlog for Q3 ended up being a lot lighter than we would’ve liked from a growth IPO perspective,” said Paul Abrahimzadeh, Citigroup Inc’s co-head of equity capital markets for North America. “The IPO market started to open and volumes are up, but it just didn’t have the sustained momentum we would’ve liked.”
Lineage is slated to price its offering after Wednesday’s close, the same day Select Medical Holdings Corp’s occupational health services unit Concentra Group Holdings Parent Inc will raise money in a carve out. They will come a day after KKR & Co’s OneStream Inc and existing shareholders aim to raise around $466mn.
If all goes to plan, it would be the busiest week for IPOs since Arm Holdings PLC led a string of deals that raised $5.9bn after last year’s Labor Day holiday. Granted this latest round is more tame than many in the market had hoped, but the reception from investors could set the tone for the fall, which is a critical stretch in an election year.
Lineage will be the largest offering since September, when Arm broke a nearly two-year freeze on offerings of more than $5bn. Lineage tapped Norway’s $1.7tn sovereign wealth fund as a cornerstone investor with an interest in buying as much as $900mn worth of shares at the IPO price, according to the filing.
“If everything plays out, September will be our biggest revenue month at Citi — and likely across the Street — just based on the number of companies that were going to go this summer that deferred to September and will try to get out ahead of the election,” said Abrahimzadeh. “September seems like a cluster of activity, which means you could get some tailwind effects that bring people public in October.”
Still, the lukewarm market for IPOs has caused a paradigm shift for investors and the private companies that make up their portfolios, according to Jeremy Abelson, founder and portfolio manager at Irving Investors. Gone are the days of assessing a short-term pop before shares settle into a normalized level, he said in an interview.
“It’s a transformatively different dynamic that started six to 12 months ago,” Abelson said. “We regularly speak with our portfolio companies about expecting the opposite of a premium and more of a coming to terms with a likely modest or discounted valuation until they become a proven public market asset with multiple successful quarters of reporting.”
That’s led some companies, including cloud-based finance platform OneStream, to tone down their ambitions. The company is seeking a market value of $4.4bn at the top of its IPO price range, down from $6bn in a 2021 funding round.
Reduced public valuations and a skittish calendar that’s made predicting deal activity more difficult may encourage companies to push listings into next year, bankers agree. That’s particularly true for firms that can tap private investors or have healthy balance sheets, so delaying is relatively easy.
“If the boards don’t love the absolute multiples of their peers, the decision is to just wait,” Citi’s Abrahimzadeh said. “That’s deferred a lot of this year’s IPO activity into 2025.”
A recent rotation by investors from mega-cap tech stocks to smaller companies has made Wall Street keen to see the catch-up trade extend through a typically quiet August in order to coax companies off the sidelines.
“You really need a material continuation of that trend to unlock the current dynamic which is heavily tied to where pre-IPO companies’ public peers are trading,” Abelson said.
Of course, not all the news is dire. US IPOs have brought in $22bn this year in a still quiet market. That’s up more than 60% from last year. But it’s also just a tenth of 2021’s banner haul, data compiled by Bloomberg show.
A strong showing this week could bolster the 2024 numbers by about 25% when it’s all over.
“People will be watching this crop of July IPOs for how they price and trade as a proxy for current investor sentiment,” said Daniel Polsky, William Blair & Co’s syndicate co-head.
