IPO Report

IPO pipeline welcomes some profitable companies, raising hopes for a rebound

Some profitable, decent-sized IPOs have joined the pipeline after a soft period

IPO shoppers can look forward to some better deals ahead. (Photo by Jessica McGowan/Getty Images)

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The U.S. initial public offering calendar is empty this holiday-shortened week, but some recent additions to the pipeline suggest December could be livelier and welcome deals from some profitable, decent-sized companies.

The IPO market has been limping of late, after a flurry of recent deals flopped either from day one or in the aftermarket. The market is unlikely to be lifted out of the doldrums until new issues start to climb above their IPO prices and investors start to make money again, said Ross Carmel, partner at Sichenzia Ross Ference Carmel LLP (SRFC), a?securities law firm with practice around public and private offerings.

“Any profitable company that chooses to go public is a good sign for the capital markets, but the key indicator to a market recovery is how these companies will trade post-IPO,” said Carmel.

Most of the big-name IPOs this year were from hypergrowth companies that were not turning a profit, including big names like grocery-delivery app Instacart CART, digital ad company Klaviyo KVYO, neuroscience-focused biotech Neumora NMRA, and Vietnamese EV company VinFast VFS.

All are now trading below their IPO price, along with Birkenstock Holdings PLC BIRK, the iconic German sandal maker that has yet to reach its issue price some six weeks after going public.

Read now: Birkenstock’s IPO was one of the worst debuts for a billion-dollar deal in a decade

Related:?Birkenstock is going public: 5 things to know about the iconic German sandal maker’s IPO designs

“Recently, we have seen profitable companies like UL Solutions ULS and Smith Douglas Homes SDHC choosing to IPO, which again is a good sign for the capital markets,” Carmel told MarketWatch. “We will know the market has turned when new issues start consistently trading above their IPO price, and thus, investors are making a profit.”

UL Solutions Inc., a testing, inspection and certification company serving customers worldwide, filed last week to list on the New York Stock Exchange.

No terms have been disclosed as yet, but Goldman Sachs and JP Morgan are leading a team of 11 banks underwriting the deal, suggesting it will be sizeable.

The company had net income of $214 million in the first nine months of the year, down from $227 million a year ago. Revenue rose to $1.99 billion from $1.89 billion a year ago.?

Smith Douglas Homes Corp., a Woodstock, Ga., home builder that lists former Agriculture Secretary and Georgia Gov. George E. “Sonny” Perdue III as a shareholder, also plans to go public on the NYSE under the symbol “SDHC,” according to a filing.?

J.P. Morgan, BofA Securities, RBC Capital Markets and Wells Fargo Securities are book-running managers. Smith Douglas Homes reported $93.5 million in net income and $547.3 million in revenue in the nine months ending Sept. 30, compared to net income of $99.14 million and revenue of $531.9 million in the year-ago period.

Other bigger-looking deals to emerge of late include Zeekr Intelligent Technology Holding Ltd. ZK, a luxury electric vehicle company that’s controlled by Hong Kong-based Geely Auto HK:175. Zeekr is planning to list on NYSE under the ticker “ZK,” in a deal led by Goldman Sachs and Morgan Stanley, as leads among 10 banks.

The company had a net loss of RMB3.7 billion ($516 billion) in the first six months of the year, wider than the loss of $2.9 billion in the year-earlier period. Revenue rose 136% to RMB21.3 billion from RMB9.0 billion the year earlier.

Then there’s Waystar Holding Corp. WAY, a healthcare payments platform, which filed last week to trade on Nasdaq under the ticker “WAY.” JPMorgan, Goldman Sachs and Barclays are lead bookrunners in a team of 10 banks working on the deal.

Waystar is loss-making, chalking up a loss of $36.9 million in the nine months through Sept. 30, after a loss of $35.9 million in the year-earlier period. Revenue rose to $584.3 million from $522.7 million.

Longer term, Carmel is betting that that a deal by payments giant Stripe is what’s needed to revive the market. Stripe is one of the most highly valued private companies, garnering a valuation of $50 billion at its last funding round in March. The company’s founders and co-CEOs John and Patrick Collison told employees in January they would make a decision about an IPO this year.

If that deal materializes, and succeeds, it would reignite interest in large-tech companies and become the high tide that lifts all boats for mid and small-cap IPOs, he said.

The IPO market has seen 102 deals priced so far this year, according to data from Renaissance Capital, a provider of IPO exchange-traded funds and institutional research. That is up 46% from 2022, but well below the frothier times before that.

The Renaissance IPO ETF has gained 35% in the year to date, while the S&P 500 has gained 18%.

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