Signs of a comeback for the initial public offering market are emerging. Publicly listed companies raised $31.9 billion in secondary stock offerings in the second quarter, the most since the third quarter of 2021. Proceeds were up about 48% from the prior three-month period and have grown by 150% raised for the same time last year, according to Dealogic. Secondary offerings are seen as a leading indicator of IPO volume since they create liquidity for investors and signal to the market that deals can be executed. In secondary share sales, public companies can issue new shares and raise fresh capital. Pre-IPO investors can trim or divest their stakes in the company. “What that means is, we’ll just see an explosion of IPOs once the window opens back up,” said Barrett Daniels, U.S. IPO services co-leader at Deloitte. “I think a lot of people in my world and IPO world are expecting this V-shaped recovery for the IPO market.” The IPO market had been in the doldrums since February 2022, when Russia’s invasion of Ukraine began. The Federal Reserve’s rate hikes, which started the following month, also upended the market. Since then, investors have been wary of lackluster returns from companies that went public during the stimulus-fueled boom of 2020 and 2021. Robinhood , Coinbase and Rivian were among some high-profile companies to go public in that time. Their shares have all shed at least half of their value since then. Doordash made its public debut in 2020 and is more than 15% down since going public. .SPX COIN,HOOD,DASH mountain 2019-12-31 SPX vs Coinbase and Robinhood since 2020 That said, secondary offerings are on the rise, which could bode well for IPOs going forward. There have been several sizable secondary offerings across different industries, with health care and industrials as the most active in the first half. GE HealthCare , Lucid Group , Agilon Health and American Water Works completed the year’s largest secondary transactions, raising $7 billion, according to LSEG Deals Intelligence. “This lines up with what we’re seeing in the IPO pipeline as well,” said Matthew Kennedy, senior strategist at Renaissance Capital, “We have seen some activity from the technology sector as well, with a secondary from Clearwater Analytics. It was a small but positive sign for the many tech deals waiting for a better IPO market.” Some signs are emerging that the IPO market is starting to thaw out. Fast-casual Mediterranean chain Cava Group went public in June, and its stock doubled on the debut. Beauty platform Oddity Tech started trading on Tuesday with a 30% pop. Companies will weigh several key factors, including recent performance in the IPO markets holding up to show evident profitability, companies reaching their desired valuations and a slower interest rate hike, added Kennedy. And although the burst of offerings by existing public companies has yet to be matched by a jump in new listings, the uptick in activity bodes well for the IPO market as it demonstrates a growing demand from equity investors. “What we’re seeing is companies now, instead of investing in that 2020 IPO that we liked so much, we think this secondary offering is a better proposition for us at this point in time. So, we’re moving in the right direction, from less risky to riskier. Ultimately, that’s what we need for the IPO market to heat back up,” said Daniels. This is taking place as the stock market enjoys a sharp rally. Year to date, the S & P 500 is up 18%, boosted by solid economic data and expectations that the Federal Reserve will end its rate-hiking campaign in the near future. Volatility has also fallen sharply in 2023, making it a more desirable time for private companies to go public. The Cboe Volatility Index (VIX), widely known as Wall Street’s “fear gauge,” is trading near its lowest levels since January 2020 — before the Covid-19 pandemic started. “I think there’s a really good chance that we will see the IPO market tick up toward the end of this year and into next year. With the IPO pipeline, as healthy as it is, I wouldn’t be surprised if it is just this mad dash, once it becomes very clear that the window is open,” said Daniels.
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