After going from boom to bust in one short year, the environment for initial public offerings in the U.S. is on the upswing again, according to Goldman Sachs. It's just going to take some time for companies to notice.
A gauge that measures the overall environment for IPOs has surged to a reading of 93 from its low of seven last September, and it's set to keep on rising, Goldman Sachs says. A level of 100 indicates the typical frequency of public debuts.
"Our baseline forecasts point to a further improvement in the IPO environment in second half of 2023," Goldman Sachs' strategists wrote in a note to clients. Still, "the improving macro backdrop has not translated into IPO activity yet."
Share sales are down so far this year even from the doldrums of 2022, and are off a whopping 95% from the heights of 2021. But there are the first glimmers of an upturn. The restaurant chain Cava raised $318 million last week in an IPO that saw its shares almost double in their first day of trading, the best U.S. debut for a firm raising more than $100 million since July 2022, data compiled by Bloomberg show.
The Gauge
Investors have watched the market for public listings shrink as the easy-money, post-pandemic era gave way to the most aggressive tightening cycle in a generation. Should an economic soft landing materialize, which Goldman strategists see as achievable, the IPO Issuance Barometer would hit 119 in the second half 2023, the bank says.
The gauge tracks factors like CEO confidence, changes in nominal two-year Treasury yields, how far the S&P 500 trades from its 52-week high and ISM manufacturing readings.
A rebound in the stock market that's pushed the S&P 500 up more than 11% in three months has been the primary force behind a jump in the index recently. Among the five variables the Barometer tracks, ISM Manufacturing is the only one that hasn't improved since the fall of 2022.
Yet companies listing on U.S. exchanges have brought in just $11 billion through June 16, a fraction of what was raised in the first half of 2021.
While many on Wall Street expect IPO activity to eventually pick up, when exactly remains a point of debate. Mike Bellin, U.S. IPO co-leader at PricewaterhouseCoopers LLP, doesn't expect things to materially change until early 2024.
"The next six months of 2023 will definitely have some IPOs, the markets are not closed and good companies can always get out," he said. But "a lot of the companies we're talking to are thinking it's more of a 2024 time frame."
--With assistance from Bailey Lipschultz.
