Wall Street’s Tech IPO Bankers Rejoice After Drought

In a market where Wall Street’s tech IPO bankers are constantly watching for opportunities, the recent market debuts of Reddit and Astera Labs were a breath of fresh air. Breaking a dry spell that had persisted since the market debuts of Instacart and Klaviyo in September, both Reddit and Astera brought a glimmer of hope to the tech IPO scene. The absence of notable venture-backed tech companies going public in the U.S. prior to this had raised concerns. According to University of Florida finance professor Jay Ritter, there have only been 15 tech IPOs in the past two years, which is a stark contrast to the booming market of 2021 when 121 tech companies went public.

Morgan Stanley came out as the big winner in this scenario, securing the coveted lead left spot on both the Reddit and Astera IPOs. Goldman Sachs, which had led only two big venture-backed offerings last year, faced a long dry spell before Morgan Stanley took the lead. Investment banks like Morgan Stanley have been actively pitching clients on IPOs and positioning themselves to be ready when companies are set to go public. The recent activity in the market is seen as a positive sign by market experts, indicating a potential surge in IPOs in the upcoming quarters.

Revenue Boost

Morgan Stanley, despite its established standing, saw a decline in its investment banking unit’s revenue over a two-year period. The recent fees earned from the Astera and Reddit IPOs, though relatively modest in comparison to its total revenue, served as a positive indicator of potential growth in the sector. A total of 12 underwriters on Astera’s IPO collected substantial fees, with Morgan Stanley taking a significant share. Astera’s success in the stock market following its Nasdaq debut showcased investors’ growing interest in AI-based companies.

Reddit, a social media platform with a cult-like following, saw a similar surge in its debut on the NYSE after going public. Morgan Stanley raked in considerable fees from Reddit’s IPO, further solidifying its position in the market. The success of both Reddit and Astera’s IPOs reflects the market’s receptiveness to new tech offerings. Lise Buyer, a founder of an IPO consultancy, noted the positive reception in the market for these IPOs, hinting at a potential wave of new offerings in the pipeline.

Looking Ahead

Investment banks like Goldman Sachs have also been actively participating in IPOs, securing positions on notable listings last year. The IPO is often seen as a precursor to a long-term relationship with the company, leading to future opportunities like follow-on offerings, debt raises, and acquisitions. With the potential for directed-share programs (DSPs) becoming more prevalent in IPOs, Wall Street firms are finding innovative ways to attract customers and build lasting relationships. Morgan Stanley’s utilization of DSPs in both Reddit and Astera’s IPOs showcases a new approach to engaging customers and expanding its wealth management services.

The recent surge in tech IPOs marks a promising turn in the market for investment banks and tech companies alike. With a renewed interest in new offerings and a positive market reception, the future looks bright for Wall Street’s tech IPO bankers.

Enterprise

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