To market, to market — the IPO rush has turned into a stampede.
Wall Street is red hot despite the pandemic and, ready or not, there’s a long list of next-gen companies jumping in and scoring big-time valuations (or hoping to).
The latest — and most eye-popping example — is the Swiss running company On Holding, which bowed on the New York Stock Exchange Wednesday, jumping more than 45 percent in its first day of trading and closing at $35 a share. The company has more than 271 million Class A shares, valued at $9.5 billion in total, as well as 345 million Class B voting rights shares.
For a company that last year posted losses on sales of about $460 million, that’s a good showing, even though the top line transcended the COVID-19 era with growth of nearly 60 percent from 2019.
Coming up next is an ever-growing queue of consumer companies looking to make their own score, including Warby Parker, Allbirds, Rent the Runway, licensing giant Authentic Brands Group, direct-to-consumer jewelry firm Brilliant Earth, beauty company Knowlton Development Corp., A.K.A. Brands and reportedly Kate Hudson’s Fabletics. They plan to join the burgeoning freshman class of 2021, made up already of Poshmark Inc., ThredUp Inc., Mytheresa, Dr. Martens, The Honest Co., Figs Inc. and Torrid Holdings.
“The U.S. IPO market has already posted its busiest year since the internet bubble in 2000, and we expect issuance to stay active in the fall,” said IPO specialist Renaissance Capital in an analysis this month. “With broader equity markets at all-time highs and a burgeoning IPO pipeline of private unicorns, many long-awaited names will finally take the leap to public markets, supported by the busiest month of August for new filings in over a decade.”
Wall Street is on track for more than 90 more listings this year, for a total of about 375 IPOs raising $125 billion all in, Renaissance estimated.
In short, investors are feeling good.
And perhaps ominously, those good feelings, mixed with a promising concept, name recognition, pandemic-era stimulus and a new interest in the stock market by everyday people is enough — for now.
Profits aren’t necessarily part of the picture yet for many of the entrants.
“When you have an IPO market as open and accepting as this one, it speaks to incredibly positive sentiment, the confidence investors have in businesses,” said David Shiffman, managing director and cohead of global consumer retail at investment bank PJ Solomon.
“There are businesses that have incredible brands, that are extremely well positioned in their relative space, have large, growing and loyal followings and customers, however, have yet to make any money,” Shiffman said. “Some of them spend an exceptional amount of money on marketing, which eats up their profitability. The bet the public markets are making is that these are one-of-a-kind players that will take significant market share over time.”
But for every one-of-a-kind business, there are always many contenders vying for the spot.
“If history serves as any guide, some will do exceptionally well,” Shiffman said. “They will tap into the right subsector with the right product mix, led by exceptionally talented leaders. Others will have a reason to exist, but they may not be the market leaders, but there’s room for many. Retail is not winner take all, it never has been. There will be others where either the concept was ahead of its time or maybe didn’t have the right leadership or maybe it was not sustainable.”
The rush of offerings comes at a time when, yes, Washington is pushing billions out into the economy, but also as investors are looking over the horizon and gauging just who is best positioned to win the consumer future.
“I don’t think it’s a quick flash in the pan,” said David Bassuk, global coleader of AlixPartners’ retail practice. “The market is hot because there was a lot of pent-up demand, there’s a lot of money out there. There’s a lot of emphasis on that target customer and there’s new ways to get to that target customer.
“The brands that are doing a good job and really understand consumer needs and digitally communicating with customers…are driving a lot of valuation opportunities,” he said.
It also doesn’t hurt that there’s a growing overlap between the customer and investor base through commission-free stock platforms like Robinhood.
Bassuk said this newer breed of smaller investor likes to “invest in businesses that they know and love. They do their research with their pocketbooks.”
Some are tapping directly into this trend.
Typically companies that go public sell shares at the offering price to large institutional investors, who turn around and create the market by reselling them on the open market.
D-to-c jeweler Brilliant Earth is switching that up, noting this week that “up to 2 percent of the shares of Class A common stock offered…will, at our request, be offered to retail investors through Robinhood Financial.”
For big investors, small investors, the companies themselves, the big banks that run the offerings, the companies themselves and their earlier backers, the getting right now is good.
Heading into the 2020s, that begs some comparison with the Roaring Twenties — when the world was also in the midst of some serious change and between two world wars. But there’s also a consensus that many of the companies coming to market are not just joining in the rush, but using a new retail operating system and are plugged into to a kind of structural growth in the market.
“It always helps to [do an] IPO in a strong market where there’s lots of demand and lots of capital,” said Katherine Black, a partner in Kearney’s consumer practice. “People feel like that’s not going to last forever, there’s a little bit of urgency.”
Where the big retail names that went public in the 1990s were selling a vision of growth that piggybacked on mall construction, new stores and a long-standing trend in brick and mortar growth, brands are now promising to expand with the ever-growing e-commerce market.
“A company that was started in the last 10 years is built for today’s world,” Black said. “They’re built to be digital first, they’re built with systems that all work together because they started that way.
“The Allbirds of the world can steal share from Macy’s and J.C Penney and maybe the DSWs of the world,” she said. “There are plenty of those [retailers] that are shutting stores, they’re struggling to attract traffic in the same way.”
For brands that are still just starting out and building stores to connect with their digital home base, the pandemic has left plenty of spaces to move into and opportunity to grow in something like the old fashion way.
“It’s a vote of confidence that smaller companies can grow quickly without the heavy investment in brick-and-mortar,” said Matthew Katz, managing partner at SSA & Co., of the burgeoning IPO market.
“In the old days, you needed investment capital to grow your reach and you did that predominantly with brick-and-mortar,” Katz said.
Now the game has changed — and stayed the same.
“You can grow at an accelerated pace through a direct-to-consumer e-commerce channel as long as you recognize you also need brick-and-mortar to support that business model,” he said.
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