In the wake of SoftBank Group’s Arm Holdings’ highly anticipated initial public offering (IPO), Wall Street is buzzing with optimism about the potential breakthrough in an IPO logjam that has persisted for the past two years. Goldman Sachs (GS), among other leading financial institutions, stands at the forefront of this IPO resurgence and is poised to reap significant benefits.
Arm Holdings’ IPO, scheduled for next week, is projected to be the largest offering since the listing of electric vehicle manufacturer Rivian Automotive (RIVN) in November 2021. Arm Holdings is renowned for its cutting-edge microchip designs, catering to the ever-evolving demands of the smartphone and tablet industries. Goldman Sachs, a key player behind this monumental IPO, is strategically positioned to capitalize on this market resurgence.
Notably, Goldman Sachs is also backing several forthcoming IPOs, some of which are expected to be among the most substantial of the year. These include the highly anticipated grocery delivery service, Instacart, marketing automation software firm Klaviyo, and the venerable German shoemaker Birkenstock. Joining Goldman Sachs in this exciting lineup as underwriters are JPMorgan Chase (JPM), Citigroup (C), Morgan Stanley (MS), Barclays, and Mizuho Financial Group.
The renewed vigor in the IPO market is a welcome development for Wall Street, which has been grappling with an extended dry spell in dealmaking. A myriad of concerns, ranging from fluctuations in interest rates and geopolitical tensions with China to uncertainties in the US economy, had subdued investor enthusiasm, making companies hesitant to go public, acquire other businesses, or accumulate more debt. This period of uncertainty prompted financial firms across Wall Street to enact cost-cutting measures, resulting in the announcement of job cuts totaling approximately 20,000 since the close of 2022.
Donna Hitscherich, a senior lecturer at Columbia Business School and former investment banker, commented, “We’ve had a moment of clarity, where we realize that trees don’t grow to the sky. There is going to be a new normal, but what is the normal?”
Regrettably, the IPO freeze has persisted throughout 2023, marking it as the worst year-to-date for IPOs since 2016 in terms of deal volume, according to data provider Dealogic. The current quarter has witnessed a similar trend, albeit with the majority of activity historically concentrated in the final month of September. As of September 6, there have been 25 IPOs in the current quarter, with a combined value of $2 billion. This total value has experienced a sharp decline of 69% compared to the second quarter and a 17% drop relative to the first quarter of this year.
Among the financial institutions yearning for a revival in the IPO market, Goldman Sachs takes center stage, facing heightened scrutiny in 2023. CEO David Solomon grapples with a myriad of challenges, ranging from internal partner dissent to concerns surrounding the firm’s strategic direction, as he endeavors to leave behind the company’s foray into consumer banking.
During the second quarter, Goldman Sachs witnessed a disheartening 20% dip in its investment banking revenues, trailing behind performances at JPMorgan, Morgan Stanley, and Bank of America. This unexpected decline played a pivotal role in the firm’s stark 58% decrease in profits.
In July, Solomon argued that the worst was behind them, pointing to a surge in “risk-on sentiment” that month. Similar sentiments were echoed by other banks, who anticipated the emergence of “green shoots.” Nevertheless, several CEOs remained cautious, insisting that it was premature to declare a turnaround, a sentiment that still lingers within some major banks.
An equity markets banker at a leading investment institution conveyed to Yahoo Finance that, despite the inclusion of Arm and Instacart, the US IPO market is unlikely to return to historical levels in 2023. Furthermore, there is apprehension that if Arm Holdings’ stock does not perform well, it could cast a shadow over the broader market.
Jim Cooney, the head of Americas equity capital markets for Bank of America (BAC), disclosed that investors and investment banks are anticipating 10-15 more companies to go public before year-end, underscoring the continued momentum in the IPO landscape. Bank of America is actively involved in supporting Arm Holdings in its forthcoming IPO, positioning itself to seize the opportunities presented by these market developments.
Source: Yahoo Finance
