Stock market gains help pave way for IPO resurgence

A strong stock market turnaround is helping spur a resurgence in companies going public a year after the number of Wall Street newcomers fell to the lowest level since the Great Recession.

Some 55 initial public offerings, or IPOs, have priced so far this year, raising $9.7 billion in proceeds, according to IPO tracker Renaissance Capital. Last year, 71 companies went public, raising $7.7 billion.

The last time there were fewer IPOs was 2009, when 63 companies went public.

All told, 100 companies have filed IPO documents this year, compared to 83 at this point in 2022, said Matt Kennedy, senior strategist at Renaissance Capital.

“We are expecting just continued, gradual pickup in the second half (of the year), gaining momentum heading into 2024,” he said.

Historically, between 150-200 companies go public every year, so the IPO market this year has a ways to go to return to a more normal pace, something Kennedy doesn’t expect will happen.

“It’s definitely going to be a slow year historically in terms of activity, he said. “2024 is going to look like more of an average year.”

The rebound in IPOs is being fueled by a stock market rally that has the S&P 500 up about 19% so far this year, a sharp reversal from last year’s 19.4% loss.

The market has rebounded this year in part because the economy has defied many predictions of a recession, at least so far. The job market in particular has remained resilient, despite the Federal Reserve’s pushing interest rates sharply higher to slow the economy in hopes of dragging down inflation.

Another reason for the market’s tear is traders betting that the Fed will be done with rate hikes after this month, when the central bank is expected to hike them one last time.

Despite a still below-average number of IPOs, the stock market rally has helped boost returns for investors in the companies that have gone public more than twofold over last year.

“That’s been a great backdrop,” Kennedy said. “Companies are able to go public at higher valuations and investors are making money.”

Shares in several companies that have gone public in recent weeks have posted large returns relative to their initial offering price. Shares in restaurant chain Cava Group have more than doubled from the IPO price of $22 per share since its market debut June 15.

Another restaurant operator, GEN Restaurant Group, has a 57.7% return relative to its IPO price since its debut June 28.