The upcoming initial public offering (IPO) of UK-based chip maker Arm, slated for Thursday, is not only expected to stir the market but also put its lead underwriter, Goldman Sachs (NYSE:GS), under scrutiny. The successful debut of Arm could potentially rejuvenate the sluggish IPO market, leading to more business for Goldman Sachs and its peers in investment banking.
Arm aims to raise approximately $5 billion at a valuation of $54.5 billion, marking the largest tech IPO since Uber Technologies (NYSE:UBER) went public in 2019. Apart from Arm, other companies like Instacart, Birkenstock, and Klaviyo are also anticipated to make their public debuts, all with Goldman Sachs as their lead underwriter. The success of these firms will be gauged by a smooth opening trade and stock prices remaining above the IPO prices in the weeks following their debuts.
Goldman's recent struggles with building a consumer finance business have put pressure on its reputation. A successful IPO season could help restore confidence in the bank's ability to take companies public and provide a much-needed boost for its CEO David Solomon.
The bank has faced challenges unrelated to IPOs, including rapidly rising interest rates and geopolitical issues that have contributed to the slow IPO market. Additionally, reports of discontent among its partners and questions about Solomon's leadership have added to the bank's woes.
Goldman's equity underwriting revenue saw a 41% increase in the first half of 2023, albeit off a low base. Between 2021 and 2022, equity underwriting revenue plunged by 83% to $848 million. The number of IPOs so far this year stands at 72, surpassing the 71 debuts in all of 2022 but falling significantly short of the 397 debuts during the booming markets of 2021.
Gerard Cassidy, an analyst at RBC (TSX:RY) Capital Markets, emphasized the importance of these IPOs being priced correctly. "If they fall below the syndicate price, that will sour the pipeline," Cassidy said to Barron's.
Goldman Sachs declined to comment on these developments. However, Solomon expressed optimism about the upcoming IPOs at a Barclay's conference this week. He said that if these IPOs go well, it could create a virtuous cycle of bringing more of the pent-up backlog to market, which in turn means more revenue for Goldman Sachs.
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