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Like choosy shoppers at a retail store, IPO investors are demanding discounts and displaying price sensitivity

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IPO investors, much like retail shoppers in recent years’ inflationary environment, are demanding clear discounts and demonstrating sensitivity to price and valuations, according to Renaissance Capital.

The provider of IPO exchange-traded funds and institutional research said that’s a positive — even if tech unicorns in the pipeline would prefer it were not the case.

“Quality consumer names are working,” said Matthew Kennedy, senior strategist at Renaissance, listing Kenvue, Cava Group Inc., Gen Restaurant Group Inc. and Savers Value Village Inc. as examples of recent new issues that enjoyed strong debuts.

the former consumer arm of Johnson & Johnson

and parent of household-name products such as Tylenol and Band-Aid, raised $3.8 billion in its May IPO at a valuation of $41.08 billion, making it the biggest deal of the year to date.

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Cava Group
the loss-making Mediterranean-style fast-casual restaurant group, raised $317 million in its mid-June deal at a valuation of $2.5 billion. The stock popped more than 99% on its first day of trade.

For more: Cava Group CFO is confident restaurant chain will be profitable — but she won’t say when

Gen Restaurant Group

is a profitable Korean barbecue chain that made its debut Wednesday with a more than 50% pop in early trade.

“But broadly investors are still demanding clear discounts to public peers, especially if they take issue with certain aspects of a deal. So it’s good to see that valuation sensitivity,” said Kennedy.

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Savers Value Village

went public Thursday with some fanfare, closing 27% above its $18 issue price. The company is the biggest for-profit thrift-store chain in North America, with 317 stores that operate under multiple names.

The company is profitable, with net income of $11.9 million in the quarter through April 2, after a loss of $10.2 million in the same period a year earlier. For all of 2022, it had net income of $84.7 million, up from $83.4 million in 2021.

Revenue for the quarter came to $327.5 million, down from $345.7 million in the year-ago period. Revenue totaled $1.4 billion for 2022, up from $1.2 billion in 2021.

See: Money-losing food chain Cava showed IPO success. Is it finally time for some tech deals?

Two other deals that made their debut on Thursday fared less well, however.

Texas-based Kodiak Gas Services Inc. 

 and Fidelis Insurance Holdings Ltd. closed lower after pricing below their estimated ranges and making other accommodations to get their deals through.

Bermuda-based Fidelis, a reinsurer, downsized its deal to 15 million shares from a previous expectation that it would offer 17 million. The initial public offering was priced at $14 a share, below the proposed $16-to-$19 range.

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Maker of oil- and gas-production equipment Kodiak opened almost 3% below its issue price of $16, which was well below its proposed price range of $19 to $22.

Fidelis has an unusual structure, in that it uses a third party for origination, underwriting and claims management, said Kennedy.

“We think insurance investors wanted a discount for a company that didn’t own the underwriting group,” he said. “It has an experienced management team, though, so now they’ll just need to execute.”

Kodiak, meanwhile, carries substantial debt and will need to undertake significant capital spendig in the coming years, just as gas prices have fallen back.

It’s also worth noting that the last big oil and gas IPO, Atlas, “is slightly below its offer price,” Kennedy said.

Atlas Energy Solutions Inc.

went public in March at an issue price of $18 a share. The stock was last quoted at $17.52.

Still, Renaissance is expecting a gradual reopening of the IPO market in the second half, said Kennedy, who noted that the IPO ETF

has gained about 30% in to date in 2023, outperforming the S&P 500’s

14% gain.

To date, there have been 52 IPOs this year, up 33% from the same time last year, when the market was effectively frozen. Almost $9 billion in proceeds have been raised, up 115% from last year but well below levels seen in frothier times.

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