The PE market is facing an impending maturity wall, but there is a glimmer of hope thanks to Cava Group’s (the VC-backed Mediterranean restaurant chain) listing on the NYSE in June 2023. As the most successful IPO for a US company since July 2022, Cava’s listing signals a potential resurgence in the IPO market.
Exit activity has declined to below pre-COVID-19 levels due to interest rate hikes and a decline in valuations, causing PE firms to hold off selling until market conditions become more favourable. According to PitchBook, this has led to a $500 billion drop in global PE exit value from 2021 to 2022.
However, Cava's IPO represents a pivotal moment for the return potential of privately held companies for several reasons. PitchBook shows that IPOs regained their prominence as an exit strategy for PE firms in 2021, surpassing corporate acquisitions as a percentage of total exits. While IPO exits accounted for just 2.8% of all exits in 2022, the success of Cava's IPO sparked discussions about the IPO market’s revival, and the number of US PE and VC-backed IPOs was higher in Q1 2023 compared to Q4 2022.
With its IPO priced at $22 per share, Cava Group closed its first day trading, 15 June 2023, at $43.78 per share. It closed on Friday, 11 August 2023, at $48.48. Although high IPO volumes may not be expected in the short term, these positive developments provide hope for exceptionally strong private companies to pursue IPOs as an exit.
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