IPO Drought Is Ending, But Don’t Expect a Deluge
Before the pandemic, the US market for initial public offerings was in general decline. The pending ones for Instacart, Klaviyo and Arm won’t reverse the trend.
Even after an Instacart offering, It could take years until the IPO market recaptures its erstwhile sizzle, if ever.
Photographer: Justin Sullivan/Getty Images
The US market for initial public offerings is finally reopening after the sleepiest stretch in 32 years. Grocery delivery business Instacart, data automation provider Klaviyo and semiconductor designer Arm Holdings Ltd. all filed to go public last week. And if those deals go through smoothly, conventional wisdom holds that others will follow. That’s probably true, but it could take years until the market recaptures its erstwhile sizzle, if ever.
First, consider what University of Florida finance professor Jay Ritter refers to as the market’s unrealistic “anchoring” to the valuations of a couple of years ago. During the peak of the 2021 bull market, companies — and tech firms in particular — carried out IPOs at such extraordinary valuations that it has left issuers with an enduring hangover. Firms are having a hard time accepting that today’s price-sales multiples don’t match the ones that their industry peers received 24 months earlier. Venture capital-backed companies in particular try to avoid so-called down rounds — or raising money at declining valuations — and that’s just what some firms would get if they came to market now.