The Return of the Mega IPO?

Rising interest rates, monetary policy uncertainty and general volatility put a dampener on global IPO activity for much of 2023. Worldwide, in the first half, IPO activity declined by~5%  in terms of number of deals, while proceeds dropped by ~36% year-on-year – which in turn is down significantly from the highs seen in 2021.  

But does the successful listing of Arm on Nasdaq on September 14, which priced at the upper end of its expected range, and jumped by almost 25% on its trading debut, signal a change in the wind?

There was certainly plenty of enthusiasm from investors for Arm’s listing – order taking closed a day early with books oversubscribed by more than 12x times and ultimately the greenshoe option was exercised, taking the transaction to USD 5.23 billion.

Commenting on Arm’s transaction, Jonathan Banet, Corporate Brokerage and Equity Syndicate, Natixis CIB, noted: “Currently the biggest IPO of the year in 2023, Arm quickly attracted the interest of investors around the world. The company, which was founded in 1990 in Cambridge, UK, is the market leader in CPU semiconductor architecture design, development, and licensing. Interactions and feedback we received during the book-building period highlight that Arm’s listing has been a success because they mastered a unique and flexible licensing business model and built an unrivalled ecosystem of technology partners. Investors also warmly welcomed the commitment of reference cornerstone investors such as AMD, Apple, Cadence, Google, Intel, MediaTek, Nvidia.

Following such positive momentum from Arm, has the window opened for more IPOS in 2023? And can we expect to see other “mega” IPOs (tech or otherwise) in the months to come?

More IPOS, potentially yes (but with reservations). On the Mega IPO front, perhaps not quite yet.

While Arm may have instigated a certain level of “FOMO” (Fear of Missing Out) in the US market, it’s more likely that investors will continue to watch the stock’s performance in the weeks and months to come. That said, following Arm’s debut, Klaviyo and Instacart filed notice of their intention to list, and others such as Birkenstock, Reddit are in the pipeline.

Speaking about the European market, Loic Chenevier, Head of Origination, France, Natixis CIB, noted: “Recent stability guidance from the ECB, combined with a forecasted long-term decrease in Euro swap rates provides a good perspective on the stability of market parameters for companies willing to test the IPO market. Volatility of equities remains at a very low level and looks favorable for possible market windows in 2024. Jumbo and Industrial deals will probably continue to attract investor appetite, which should allow for a progressive re-opening and improvement of the overall situation. After Arm came to the market in the US, it provides positive signs to institutional demand.”

Looking across the globe, while activity has been down year-on-year, Asia Pacific saw a quiet flurry of activity through the first half of the year, and it looks set to continue.

Globally, market sentiment too has improved slightly following the ECBs decision to hike rates and the Fed’s decision to maintain rates.

With the end of the interest rate hiking cycle in sight, and a return of transactions to the market, there are strong indications that the IPO trend will persist, although likely generating more activity towards the end of the final quarter of 2023 and into the first half of 2024.

The key takeaway: while somewhat diminished, market uncertainty persists, and ultimately companies and investors need to be ready to take advantage of upcoming IPO windows.