What bankers and investors are watching as Arm’s September IPO approaches

It’s been a while since IPOs dominated the headlines, but that’s likely going to happen in September. Three high-profile tech offerings from semiconductor firm Arm, grocery technology business Instacart, and Klaviyo, a data and marketing automation firm, are expected to launch this month.

IPOs have basically been stuck in the slow lane since 2021 when a record-breaking number of companies—397—went public. This year, just 77 businesses have listed their shares, raising $10.2 billion as of Aug. 29, according to Dealogic. This is up from 70 for the same time period in 2022 that collected $5.2 billion. There are many reasons why offerings have slowed so much but much of the blame belongs to the IPO Class of 2021. New issues from that year have performed horribly. More than 80% of this 397-member group is still trading below its offer price, data from Renaissance Capital shows.

For roughly the past two years, IPOs have been dormant, waiting for some big, sexy deals to bring investors back. Arm, Instacart and Klaviyo have the potential to do that. As I recently wrote: “The trio of deals represent different parts of the tech sector: semiconductors (Arm), software (Klaviyo) and Internet (Instacart). If they perform well, the deals will likely give smaller cap businesses the confidence to launch their own offerings, according to bankers. Companies that were planning to go public in 2024, or wanted to test the waters, are now considering moving up their plans,” sources told me.

Hopes are high that all three IPOs will do well, but really much of the pressure is on Arm. The U.K. Company designs the CPUs, or chips, that power more than 99% of the world’s smartphones, according to its regulatory filing. Arm, which is majority owned by SoftBank Group, is expected to deliver the year’s biggest IPO when it opens for trading, likely in September.

Arm is the headline IPO of the year. A poor performance by the company won’t kill the IPO market but it will make it harder for other deals to go forward, bankers tell me. So how well does Arm have to do? Again, Arm is expected to deliver a very big IPO, but given its size the people I’ve spoken to think it’s unlikely Arm will double the way Cava Group did earlier this year or even gain 50%.

Basically, no one wants a repeat of what happened to Facebook in 2012. To refresh your memory, Facebook priced its $16 billion IPO at $38 a share in May 2012. The stock began trading on May 18 of that year, hit a $45 high, before closing at $38.23. The next trading day, Facebook’s stock fell below $38 and remained below the IPO price for more than a year. Facebook, which is now known as Meta, didn’t recover until August 2013, when it began trading above $38 a share. Meta shares ended Thursday at $295.89.

There’s also Rivian, which delivered one of the last big deals to hit the IPO market. The EV maker raised nearly $12 billion in November 2021. It had a great debut when its stock rose 29% from its $78 offer price. Rivian’s shares managed to stay above $78 for several weeks but then dropped below its IPO price in January 2022. The stock this year has remained below $78, hitting a low of $11.68 in April. On Thursday, Rivian’s stock closed at $22.73.

It’s very unlikely Arm will break in its first day of trading, but in the IPO market nothing is a sure thing. Read the full story here to learn more about how bankers and investors predict Arm will perform.

Have a great Friday.

Luisa Beltran
Twitter: @LuisaRBeltran
Email: [email protected]
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Joe Abrams curated the deals section of today’s newsletter.

VENTURE DEALS

- AI21 Labs, a Tel Aviv, Israel-based A.I. And large language model developer, raised $155 million in Series C funding. Walden Catalyst, Pitango, SCB10X, b2venture, Samsung Next, and others invested in the round. 

- Otto, an Austin, Tex.-based customer engagement platform for veterinary clinics, raised $43 million in Series B funding. Hill’s Pet Nutrition, Mercury Fund and Boehringer Ingelheim invested in the round. 

- Sortera Technologies, a Markle, Ind.-based recycling platform company, raised $30.5 million in Series C funding. RA Capital Management-Planetary Health led the round and was joined by investors including T.Rowe Price Associates, Mitsubishi Mineral Resources Group, Macquarie, Assembly Ventures, and others. 

- CH4 Global, a Henderson, Nev.-based climate tech company that wants to reduce greenhouse gas emissions, raised $29 million in Series B funding. DCVC, DCVC Bio, and Cleveland Avenue led the round and were joined by others. 

- Speak, a San Francisco-based language-learning mobile app for those learning English, raised $16 million in Series B-2 funding. Lachy Groom led the round and was joined by Drew Houston, Arash Ferdowsi, and existing investor OpenAI Startup Fund. 

- Clock.bio, Cambridge, U.K.-based anti-aging startup, raised $4 million in funding. Blueyard Capital led the round. 

- Frontier Risk Group, a Westport, Conn.-based insurance company for the cannabis sector, raised $3.1 million in seed funding. Casa Verde led the round and was joined by Euclid VC, Inter-Atlantic Capital Group, and Bruce Macfarlane.

- Mimetrik, a Leeds, U.K.-based developer of A.I.-connected digital dentistry products, raised £2 million ($2.5 million) in seed funding. Northern Gritstone led the round. 

- Parallel, a Lehi, Utah-based fintech platform developer for headcount forecasting, raised $1.9 million in pre-seed funding. Penny Jar Capital led the round and was joined by Convoi Ventures, Peak Capital, the Frazier group, and others. 

PRIVATE EQUITY

- Cerberus Capital management agreed to acquire Spring EQ, a Conshohocken, Penn.-based home equity financing solutions provider. Financial terms were not disclosed.

- Cordiant Digital Infrastructure, a subsidiary of Cordiant Capital, agreed to acquire Speed Fibre, a Dublin, Ireland-based fiber infrastructure provider, for €97 million ($105.4 million). 

- IFS agreed to acquire Falkonry, a Cupertino, Calif.-based A.I. Company for the manufacturing and defense industries. Financial terms were not disclosed.

- Lavoie agreed to acquire VanMoof, an Amsterdam, Netherlands-based e-bike provider. Financial terms were not disclosed. 

- Verdane acquired a majority stake in UrbanVolt, a Dublin, Ireland-based clean energy provider with a “solar-as-a-service” model, for up to €26 million ($28.2 million).

OTHER

- Novo Nordisk agreed to acquire Embark Biotech, a Copenhagen, Denmark-based biotechnology company for up to €471 million ($512 million), according to Bloomberg.

- Gokaldas Exports agreed to acquire Atraco Group, a Dubai, U.A.E.-based clothing apparel manufacturer, for $55 million.

PEOPLE

- Zeal Capital Partners, a Washington, D.C.-based venture capital firm, hired Emily Zhen as principal. Formerly, she was with New Enterprise Associates.