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It's been a dismal year for IPOs. Blame the usual maelstrom of headwinds—Ukrainflationterest?—as well as the terrible performance of the recent IPO class. PitchBook's index of VC-backed IPOs is down by more than half this year, and PE-backed IPOs have lost more than one-third of their value.
Now, a pair of mega-IPOs—carmaker Porsche and AIG-owned Corebridge—will be the talk of the market as they test the waters.
Volkswagen AG plans to list a roughly 12.5% stake in Porsche as early as this month in Frankfurt. The deal would be among Europe's largest IPOs by valuation at a reported $60 billion to $85 billion, based on preorders.
The conditions aren't great, but Porsche and VW have a habit of pulling off hard tasks in crummy markets. In the lead-up to 2009, Porsche accrued a majority stake in VW with an eye toward taking it over. But when the financial crisis deepened, fortunes flipped. Porsche dropped takeover plans and instead sought a merger with VW, which was completed in 2012.
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In another major listing coming soon, AIG's Corebridge insurance and asset-management unit could be valued at more than $15.5 billion and raise up to $1.9 billion.
So is this the moment when the frozen IPO market will finally thaw? Not quite.
Porsche and Corebridge are unique offerings in more ways than one. The masses of IPO hopefuls in waiting, particularly young tech companies, will need more assurance before they brave the exchanges.
Both Porsche and Corebridge are good candidates for today's discerning markets. Porsche is among the world's best-known brands, and the eponymous family is taking a large stake in the deal. Corebridge reported more than $6 billion in net income in the first six months of 2022 and it serves a well-established market.
These two IPOs are also cases of a parent company strategically offloading an asset in order to gain cash. Volkswagen will use the money for its electrification push. AIG is streamlining operations as part of a long-term strategy.
Porsche's deal may be a sign of the market climate improving, but that seems unlikely to rekindle tech CEOs' desires to go public any time soon. For unprofitable growth-stage companies, IPOs remain a much harder sell.
"Many of the VC-backed companies are still going to go to market with losses, and potentially slowing growth because of the market," said Kyle Stanford, a senior analyst at PitchBook.
Tech companies need to see a true tech player go public to judge the market's receptiveness. They may get that if, for example, Instacart goes through with its plans to hit up Wall Street. "Instacart seems to be posturing for an IPO by adding new services and announcing growing revenues," Stanford said.
The fact that valuations in the private market typically lag the public market has increased the appeal of staying private, but only temporarily. Private investors are showing increased price discipline.
"We have a lot of companies that are talking to their investors, and their investors are telling them not to expect new money any time soon," said David Peinsipp, a partner at law firm Cooley. "But there is a lot of investment supply out there, and both sides can't figure out how to find mutually acceptable valuations amongst these huge fluctuations and volatility."
As late-stage startups wait, the urgency to raise capital—either via an IPO or from the private market—is only growing. The typical late-stage startup has raised a fresh round every 16 to 20 months over the past decade, according to PitchBook data. More than 100 VC-backed companies worth at least $1 billion are currently in that sweet spot.
Medtech company Tempus Labs, which reportedly had been eyeing a 2022 IPO, hasn't raised funding since late 2020, when it was valued at $8.1 billion. Weight-loss app maker Noom and ecommerce app provider StockX, which are also candidates to go public, haven't raised capital in more than 15 months.
The reality is setting in that nosebleed tech-valuation multiples are a thing of the past. Thanks in part to last year's IPO boom, private investors have plenty of public price comparisons to use as marks for today's funding rounds.
Soon, any discrepancy between public and private market valuations should disappear. At that point, startups that hoped for shelter in the private markets will again see the appeal of an IPO.
Featured image by Daniel Pullen/Getty Images
This article originally appeared on PitchBook News