IPO Environment Improving but Activity Lagging Behind, Goldman Says

The environment for initial public offerings (IPO) has reportedly improved to nearly its typical level.

However, at the same time, the amount of IPO activity is lagging behind and not seeing the same kind of improvement, Bloomberg reported Tuesday (June 20), citing research from Goldman Sachs.

The financial institution found that on a scale on which 100 equals the typical macro environment for IPO activity, the current environment is rated at 93 — far above the low of 7 to which it dropped in September 2022, according to the report.

The factors included in determining how conducive the environment is for IPO activity include CEO confidence, nominal two-year Treasury yields, the S&P 500’s trades and the ISM Manufacturing Index, the report said.

While the environment has improved since September, IPO activity remains below that of 2022 and 95% below that of 2021, per the report.

Goldman Sachs analysts expect the IPO environment to continue improving in the second half of 2023, even hitting a level of 119 on its barometer if there is an economic soft landing at that time, according to the report.

Bloomberg reported that last week’s IPO by restaurant chain Cava — which was the best U.S. debut for a firm raising more than $100 million since July 2022 — suggests the beginning of an upturn.

Cava’s IPO priced its 14.4 million shares at $22, well above the company’s expected range of $17 to $19, and its $318 million haul reportedly made it one of the largest IPOs so far this year.

FinTech IPO names surged 3.8% last week as government data pointed to cooling inflation and retail sales data showed that consumer spending remains resilient.

For example, Upstart Holdings shares rallied more than 29%, SoFi shares gained 25% on the heels of a resumption in student loan payments, and Affirm shares were up 5.2% as Amazon added Affirm’s pay-over-time option to Amazon Pay.

In an interview earlier this month with Yahoo Finance, Affirm CEO Max Levchin said: “The U.S. economy is performing a lot better, a lot more resiliently than some of the naysayers had said six months ago, nine months ago.”