Awakening of the U.S. IPO Market

During the first half of 2023, the NASDAQ index demonstrated remarkable resilience, defying macroeconomic headwinds and surging by an impressive 38%. Despite this positive momentum, the US IPO market has been subdued for the past 24 months as companies approached it with caution. However, recent indicators suggest that brighter days lie ahead. With the Federal Reserve pausing interest-rate hikes and inflation showing signs of decline, the outlook appears more stable, prompting a potential change in the IPO market’s dynamics.

Green shoots of recovery are already visible. For instance, Cava, a fast-casual Mediterranean restaurant chain, made a noteworthy debut on the New York Stock Exchange, raising $318 million on an oversubscribed book and witnessing a staggering 117% share price increase on its first trading day. Similarly, Johnson & Johnson’s consumer business, Kenvue, achieved a valuation of approximately $47 billion, establishing itself as the largest US IPO since 2021.

Another significant example is Softbank’s chipmaker, Arm Holdings, which has reportedly filed to sell its shares on NASDAQ. This highly anticipated IPO is targeting a valuation of $50 – $60 billion and aims to raise $8 – $10 billion, injecting further enthusiasm and investor appetite into the already active US IPO market.

Even this week it was reported that private equity owners of German sandal maker Birkenstock are considering an US IPO which could be valued by as much as $8bn.

Barrett Daniels, US IPO co-leader at Deloitte, emphasizes that these success stories are part of an emerging trend. In fact, by his estimations there are over 1,000 companies worth more than $1 billion eagerly await their turn to go public in the US. As market sentiment continues to climb, Daniels predicts that these companies may make their move sooner rather than later.

Recent developments also highlight the US IPO market’s favorable conditions compared to Europe and Asia. While inflation remains persistent in those markets, the US benefits from more favorable economic conditions, with the Federal Reserve’s cautious approach and declining inflation.

Moreover, the US market’s success can be attributed to its streamlined and investor-focused framework, setting it apart from Europe’s stringent regulations which are increasingly being criticized for being overly bureaucratic and  as unfriendly to businesses

Similarly, the absence of a unified IPO framework across countries in Asia, creates protracted and often complex listing processes deterring potential IPO candidates from listing there. As a result, companies seeking streamlined and investor-friendly markets often turn their attention elsewhere.

The global capital raising environment remains competitive, however. Start-ups are still having to carefully strategize how to set themselves apart from te competition. Though the tools at their disposal remain largely unchanged, the high level of competition demands perfect execution.

Therefore, the positive momentum in the US IPO market compared to that of Europe and Asia cannot be overstated. Companies are naturally inclined to fundraise where they have the highest chances of success. While it remains to be seen if the US will retain its attractiveness as the most sought-after IPO market post-pandemic, the outlook continues to be optimistic for the sector, and we remain eager to observe its developments with great interest.

As a global agency we are fully aware of the different market dynamics when it comes to IPOs and can advise our clients accordingly wherever they choose to list.