IPO Window Cracks Open and Private Equity Moves in

The IPO window has opened—at least a crack—and private-equity sponsors are starting to line up.

Among the initial public offerings this week are EQT-backed Kodiak Gas Services and Ares Management-backed Savers Value Village, marking the return of leveraged buyouts to the IPO market, according to IPO specialist Renaissance Capital. Savers had initially filed to go public in late 2021.

“The IPO market broadly is opening up, but PE especially is having a moment,” said Matthew Kennedy, senior IPO market strategist at Renaissance Capital, noting that all of the largest IPOs this week were backed by private equity.

While IPOs generally represent a less popular exit route for private equity-backed companies than mergers or strategic sales, the IPO market is considered a bellwether for the exit environment.

And the recent successful IPOs of companies like Invus Group-backed restaurant chain Cava Group and Johnson & Johnson’s consumer healthcare business Kenvue are offering glimmers of hope, academics and attorneys said. Further, Cava’s success showed that investors are willing to back companies that aren’t profitable yet.

Follow-on stock offerings are also showing signs of life. TPG-backed Nextracker, a solar technology company that went public in February as a carve-out of manufacturing giant Flex, launched an offering this week that will allow TPG to cash in some of its holdings. Nextracker remains controlled by Flex.

Jay Ritter, a finance professor at the University of Florida, said public stock investors are willing to put their money behind companies that lay out growth plans. An extreme example of that, he said, are biopharmaceutical startups. However, investors are less excited about companies that are growing rapidly just because they are selling their products or services below cost, according to Ritter.

Ritter said that if this week’s deals generated strong reception, “that certainly is going to encourage some other companies to decide to go public now rather than wait or sell to a private buyer.”

While the stocks of Kodiak and reinsurer Fidelis Insurance Holdings fell on the first day of trading, Ritter said “the strong reception to [Savers] saves the day. So no major change in opinion.”

Both Ritter’s research and Renaissance Capital’s IPO data show private equity-backed IPOs collapsed last year, but volume is picking up this year. June activity points to an IPO pickup in the second half of the year, according to Kennedy, the Renaissance Capital senior strategist.

“It’s going to end up looking like a relatively slow second half, but slow is a lot better than nothing, which is basically what I’ve been seeing for the last year and a half,” he said.

Portfolio companies lined up for IPOs include L Catterton-backed Oddity Tech and Klaviyo, a marketing automation company whose backers include Summit Partners and Accel. Oddity Tech, the online beauty-care retailer behind beauty brands Il Makiage and SpoiledChild, last year sold digital securities that convert to stock shares in an IPO.

Given the difficult market, some companies, including Cava and thrift-store operator Savers, are lining up investors in advance to anchor their offerings. Canada’s Healthcare of Ontario Pension Plan and Norway’s Norges Bank Investment Management indicated they intended to buy up to $130 million worth of Savers’ shares at the IPO price, according to IPO documents.

Savers ended up upsizing its IPO as Ares, which initially backed the company in 2019 and remains its controlling shareholder, moved to sell more than 3.5 million shares. The company’s stock closed Thursday at $22.91, up 27% on its first day of trading.

Several Fidelis investors, including Crestview Partners, CVC Capital Partners and the Abu Dhabi Investment Authority, also sold some of their holdings in the Bermuda-based reinsurance company in the IPO. But they ended up cutting the amount of shares they offered as the IPO priced below expectations.

Joshua DuClos, a partner at law firm Sidley Austin, said the recent IPO activity and follow-ons are encouraging signs, particularly given that July and August are typically quiet months.

“That’s not to say that three-four IPOs means that everything’s back to heyday, and everybody’s rushing into the market,” he said.