The IPO Market Is Showing Signs Of Improvement

British chip designer Arm, grocery delivery firm Instacart, and marketing-automation platform Klaviyo are collectively aiming to raise billions of dollars through stock offerings in September. These three prominent initial public offerings represent a revival after the prolonged period of inactivity that affected the IPO market for the past 18 months.

  • The stakes are considerable: If these three IPOs perform well and result in gains for the companies and their selling shareholders, it will likely inspire other firms to list their stocks in the upcoming months, according to many experts in the banking, legal, and investment fields. Conversely, if they encounter difficulties, the IPO slump might persist.
  • Corporate executives, bankers, lawyers, and investors all share the desire for these offerings to succeed. To ensure favorable outcomes, they are strategically arranging major investors in advance or offering a relatively small portion of the company in the IPO.

Limited Shares And Strategic Investors

In its regulatory filing last week, Instacart revealed that it has secured commitments from large investors including Norges Bank, Sequoia Capital, and Valiant Capital Management to purchase up to $400 million in stock during its IPO. This could potentially represent around half or more of the total shares offered, sources familiar with the matter suggested. Additionally, PepsiCo has agreed separately to buy $175 million worth of Instacart's convertible preferred stock in a concurrent private placement to the IPO.

  • Sources familiar with the situation have indicated that Klaviyo is also in discussions with potential anchor investors for its offering.
  • Both Klaviyo and Instacart intend to sell less than 10% of their total outstanding shares during the IPO, a departure from the past practice of floating at least 10% in such offerings, a trend that has decreased in recent years.

Strategic Support And Commitment

Securing cornerstone investors is a strategy that IPO advisors have employed previously. ZoomInfo and Warner Music Group were among the first major offerings after the initial impact of the Covid-19 pandemic, and they also secured substantial portions of their IPO proceeds in advance. Earlier this summer, direct-to-consumer beauty company Oddity Tech obtained $100 million from significant investors prior to its IPO, and its stock performed well initially.

  • Ahead of its IPO, Arm has engaged in discussions with its major customers about the possibility of them becoming strategic investors in the offering. These strategic investments are anticipated to be relatively modest compared to the larger fundraising goals, ranging from $50 million to $100 million each, sources said.
  • While strategic investors typically do not influence the pricing of an IPO, their involvement does speak to the company's standing in its industry. For example, if many of Arm's major customers become strategic investors, it could be seen as an endorsement of Arm's position in the chip sector.

Similarly, PepsiCo's planned investment in Instacart carries significance due to their advertising partnership, which is an expanding facet of PepsiCo's business.

Disclaimer

Please note that Benchmark does not produce investment advice in any form. Our articles are not research reports and are not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by John Angel / Unsplash.