Getting early support from investors is proving a linchpin for several of this year’s top performing US initial public offerings as it helps bolster confidence across the Street.
(Bloomberg) — Getting early support from investors is proving a linchpin for several of this year’s top performing US initial public offerings as it helps bolster confidence across the Street.
Cava Group Inc. lined up firms including T. Rowe Price to buy a chunk of its $318 million offering before its debut on the market. For L Catterton-backed Oddity Tech Ltd., Baillie Gifford and Franklin Templeton were among those tapped while Savers Value Village Inc. drew interest from Healthcare of Ontario Pension Plan and Norges Bank.
“This isn’t a trade” for these so-called cornerstone stakeholders, Douglas Adams, global co-head of equity capital markets at Citigroup. “This is a real investment and that gives other investors more confidence to spend the time looking at the company.”
Cava, Savers, and Oddity priced their offerings above the marketed range, a signal of robust demand for the offerings, making them the only companies to do that on US exchanges this year in IPOs that raised more than $150 million, according to Bloomberg data. They also jumped more than 25% in their first sessions — three of the six best such debuts.
The idea of cornerstone or anchor investors isn’t new in the US, but it has been more popular in Europe and Hong Kong, according to industry watchers. For the company, it can tout support from a big backer while the large investors can secure a hefty allocation of the IPO shares.
That’s what happened for T. Rowe Price with Cava.
“If we were to have waited until the IPO to make our first investment in a company of that size, it’s very difficult to get the allocation,” David DiPietro, head of private equity at T. Rowe Price, said by phone. “We’re trying to get an earlier and lower value in the private realm and also to get more shares in an IPO.”
Because some of the stocks commit a group of shares to money managers seen as less likely to sell in the opening days, the tighter supply of an already-small pool of available shares can also help drive prices even higher in the opening days and weeks of trading.
Read more: Beauty Company Oddity Jumps in Debut After $424 Million IPO (2)
In an IPO market that’s still recovering from a dearth of new issuance, a spurt of successful offerings paired with strong market fundamentals may set the stage for a gradual increase in activity. Still, just $13.8 billion have been raised by 96 firms on US exchanges this year, less than the $18.8 billion at this point last year and a 94% plunge from this point in 2021’s banner year, data compiled by Bloomberg show.
Cornerstone investors could play a key role in the IPO market in the second half, especially after September’s Labor Day holiday. British chip designer Arm Ltd. — which is said to be in talks for anchor investors of its own — is expected to be the year’s biggest IPO. Other household names such as Instacart Inc., car-sharing business Turo Inc., and marketing-automation platform Klaviyo Inc. are among those expected to move ahead with listings.
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