The deal that could break the IPO logjam: Morning Brief
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For months, we’ve been following the drumbeat of news around the pending IPO of chip-designing giant Arm Holdings. We learned Tuesday that the company’s parent, SoftBank, was looking to raise up to $4.87 billion in the IPO, giving Arm a valuation of more than $52 billion.
After the past couple of years, you'd be forgiven if you forgot what an IPO is. But now even just talking about something like this raises hopes that a debut this massive might finally open the IPO floodgates.
The catalyst: investors potentially hungry to throw some money at some (hopefully) growthy new entrants besides, well, Nvidia.
“It could feasibly be the deal that breaks the IPO logjam,” said Avery Spear, senior data analyst at the IPO research firm Renaissance Capital. It depends in large part on how Arm performs, not just on its first day of trading, but in the days, weeks, and months that follow, she said. A bump in shares could encourage other companies to debut, which could draw investor interest, in turn leading to more deals.
Arm is both an indicator and an outlier. Its current estimated market cap is lower than $64 billion, the valuation at which SoftBank bought shares last month. But it’s higher than the $40 billion price tag that Nvidia (yes, Nvidia again) offered to buy Arm for before the deal was axed by regulators.
That not-peak but not-as-bad-as-it-was valuation might give some reassurance to IPO hopefuls who have been watching the market and deciding when to strike. Many of them might still have to swallow a lowered valuation compared to the go-go days of 2021. “Many venture-backed companies will have to accept the reality of a ‘downround’ IPO if they raised in the top of the market in 2021,” said Brianne Lynch, head of market insight at EquityZen.
Arm is unusual for an IPO in that it’s far from a startup, having been created in 1990 as a joint venture between Apple, Acorn Computers, and VLSI Technology. It was a public company before its purchase by SoftBank in 2016 for $32 billion. The next-largest IPO this year, Johnson & Johnson spinoff Kenvue, also wasn’t a typical debut.
Other years-in-the-making IPOs, like that of Instacart — which may finally come this year — could be more indicative of demand for unicorns going public, said Spear of Renaissance. Klaviyo, a maker of marketing automation software, could also be a good indicator.
One encouraging sign for both public-market investors looking for fresh blood and private-company funders looking to exit — the Renaissance IPO ETF, which tracks newly public companies, is up more than 33% this year.
Programming note: Brianne Lynch of EquityZen will join Yahoo Finance Live in the 10 a.m. ET hour on Wednesday.
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