Arm listing stirs hopes of fee revival at Wall Street banks

Arm’s successful initial public offering this week and plans for other substantial listings are stirring Wall Street bankers’ hopes for a return of billions in fees after a year and a half in which new issues were all but stalled.

SoftBank-backed chip designer Arm expects to pay its underwriters as much as $104.6mn in fees, according to an updated prospectus filed after its first day of trading on Thursday, providing IPO bankers their first big payout in a while.

The fees will be split among the 28 banks involved in the deal, with the banks leading it — so-called bookrunners Barclays, Goldman Sachs, JPMorgan and Mizuho — splitting equally about 70 per cent of the total commission.

Dealmakers hope the Arm offering will be a harbinger for a broader recovery for an investment banking sector in the doldrums ever since the Federal Reserve started aggressively raising US interest rates to combat inflation last year.

“The headline is the IPO market is in the final phase of the recovery,” said Jim Cooney, head of Americas equity capital markets at Bank of America. “There are five to seven important deals scheduled for 2023, but if the majority price and trade well, then you could see an acceleration of transactions waiting for next year to move into the fourth quarter.”

Two other high-profile but smaller IPOs — grocery delivery company Instacart and email marketing company Klaviyo — are expected to start trading next week. Neither company has disclosed how much it will pay their underwriters, but based on average fees the two deals could generate another $70mn for Wall Street’s until recently payday-starved IPO specialists.

Senior bankers warned that the IPO market is still fragile and it was unrealistic to expect a flood of new deals. Only a handful of IPOs are likely to get done this year, they say, and that the bulk of those anticipated fees might not come until next year.

Although stock markets have rebounded and volatility has declined this year, few companies are rushing to bring forward their plans.

“We’re still in an environment where the economic outlook is questionable,” said Eddie Molloy, co-head of Americas equity capital markets at Morgan Stanley. “Being able to show an operational track record for another few quarters is probably helpful” for companies to win over investors.

In a good year, the business of shepherding start-ups and other companies into the public markets is one of Wall Street’s best. In 2021 the number of new listings hit a record high and IPO bankers collected more than $14bn in fees on US deals alone, according to data from Bloomberg.

But it has always been a feast-or-famine business tied to the strength of the overall stock market. Fees from US IPOs plunged along with the stock market to less than $1bn last year. Until Arm, the IPO market had continued to be humdrum, generating just $500mn in fees during the first eight months of the year for the dozens of banks vying for business.

But bankers said enthusiasm around the Arm deal has resulted in more incoming calls.

Arm priced its offering at $51 a share, the top of its price range, and the stock jumped 25 per cent on the Nasdaq exchange to close at $63.59 on Thursday.

“In the wake of it you should now see more [companies] feeling confident and comfortable with the idea of going public,” said a banker who worked on the Arm listing. But the person added that the chip designer was larger and more established than most IPO candidates: “Revenue scale and profitability has been helpful here.”

Turo, an Airbnb-like platform for rental cars, filed for its IPO more than a year ago. The company is now aiming to list by late October, according to a person familiar with the matter.

The German sandal company Birkenstock this week became the latest company to announce plans for an IPO, targeting a $8bn valuation in a deal later this year.

“Our IPO backlog is as strong as it’s ever been,” said Keith Canton, who is head of Americas equity capital markets at JPMorgan Chase. “How that will translate into deal volumes is still going to be somewhat measured.”

The IPO recovery has been especially good news for Goldman Sachs, which the Financial Times recently reported is embarking on a new round of lay-offs as it grapples with a drop in deals and an ill-fated foray into consumer banking.

The bank has also lost a number of high-profile technology bankers this year. Tammy Kiely, co-head of technology investment banking, left the bank in June.

Nonetheless, Goldman nabbed a top spot on the Arm, Instacart and Klaviyo IPOs. It generated more than $2bn in fees from IPO deals in 2021, but just $110mn this year prior to the Arm listing, according to Dealogic. It is also co-leading the Birkenstock offering along with JPMorgan and Morgan Stanley.

BofA, which did not rank among the top 10 underwriters of IPOs last year, also looks surprisingly well-positioned if the IPO market continues to perk up.

Internationally, 82 companies have filed to go public in the past year, according to data from Bloomberg. While many more companies file for IPOs than actually complete them, BofA is listed as a lead underwriter on six of those deals, tied with JPMorgan for the most out of any big bank.

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