US restaurant chain tests appetite to IPOs with Cava Pops

The shares of US restaurant chain Cava nearly doubled in value on their New York debut Thursday. This success could inspire others to follow Cava to the market, and end a long capital raising drought.

According to Dealogic, Cava’s Pop was the best debut day performance of a US Initial Public Offering that raised more than $300mn for almost two years.

The Mediterranean-style food chain that describes itself as bringing “heart, healthy, and humane to food” raised $318mn in its IPO.

Cava made gains despite aggressive pricing. The company raised its price range for shares and then re-priced them at $22 per share, 10 percent above the new top of the range.

The company’s shares rose by 99 percent on Thursday, to $43.78, which puts the market capitalisation of the loss-making company at $4.9bn.

The benchmark S&P 500 index has increased by 15 percent this year. However, the market’s sentiment is less confident as investors worry about the possibility of a recession. They also fret about the rally being dependent on a handful of large technology companies such as Nvidia and Microsoft.

The Federal Reserve kept interest rates steady on Wednesday, just hours before Cava’s deal was priced. This is the first time the Federal Reserve has done this in 15 months.

According to Dealogic, IPOs raised $8bn this year in the US. This is close to the $8.6bn that was raised by US markets in 2022, a year of heavy declines. However, it is still far below the $154bn in 2021’s boom.

Bankers warned against expecting an influx of deals.

Brittany Collier is the head of equity capital markets for consumer and retail at JPMorgan. She said, “I expect a gradual opening of the market. Not an opening of floodgates.” There is demand for quality companies.

Collier, who was not involved in the transaction, declined to comment.

The IPO problem is not just a US issue. Companies have raised $56bn globally, almost a quarter less than they did at this time last and 70% less than during the boom of 2021.

The London-based soda ash manufacturer We Soda halted plans on Wednesday to sell shares up to PS1bn, after investors refused to pay the price that the company demanded. The UK capital was expecting the biggest float of this year.