Can hot IPOs revive the market?

One thing to start: FTX has sued the parents of Sam Bankman-Fried, claiming they enriched themselves by siphoning off millions of dollars in “fraudulently transferred and misappropriated funds” from the cryptocurrency exchange their son founded.

In today’s newsletter: 

The IPO market begins to thaw for fee-starved bankers

After a gruelling 18-month drought of listings, dealmakers focused on equity capital markets have finally begun to feel some hope.

Less than a week after SoftBank-backed chip designer Arm’s $5bn initial public offering in New York, ecommerce company Instacart made its long-awaited public markets debut on Tuesday. 

The recent action has raised hopes among private equity and venture capital investors who are in desperate need of exits to return cash to their investors, which include pension funds and family offices that have received few payouts over the past couple of years.

But the optimism may be shortlived. While Arm’s shares jumped to $63.59 on their first day of trading, up almost 25 per cent from their offer price of $51, they’ve since declined for three consecutive days, closing at $55.17 on Tuesday.

Meanwhile, Instacart’s newly appointed valuation of $11.2bn still pales in comparison to the $39bn valuation it touted in 2021. It also saw a big jump in its share price in its first day of trading but ended up closing almost 20 per cent below where its shares first opened* on Tuesday.

Arm’s IPO unleashed a fee bonanza for more than just bankers, earning professional services advisers including Deloitte and law firm Morrison & Foerster a collective $84mn.

Meanwhile the chip designer’s lead bookrunners at Barclays, Goldman Sachs, JPMorgan Chase and Mizuho are expected to receive an even bigger windfall — $104.6mn, according to an updated prospectus filed after its first day of trading last week.

(SoftBank’s founder Masayoshi Son, under pressure to boost liquidity and recoup his visionary status after a slew of failed investments including WeWork, Greensill Capital and FTX, had his own reasons to celebrate.)

More tests lie around the corner. Marketing automation company Klaviyo, which raised the price range for its IPO by two dollars to $29 per share this week, is expected to start trading in New York on Wednesday.

It could be a better gauge of investors’ appetite for new listings with less of the fanfare that surrounded Arm and Instacart. German shoemaker Birkenstock’s IPO, meanwhile, could be valued above $8bn — unlocking a big return for its owner L Catterton, the private equity firm backed by French luxury fashion house LVMH.

The cork sandal purveyor is enjoying a renaissance in popularity as of late. But the rollercoaster valuations of other shoe brands like Dr. Martens and Crocs raises doubts over whether any brand is immune to fashion trends, the FT’s John Gapper notes.

Uncertainty aside, one clear winner has already emerged as New York’s listings market begins to thaw: Goldman Sachs. In addition to Arm, the US investment bank has also taken lead underwriting roles on the IPOs of Instacart, Klaviyo and Birkenstock. They even trumpeted their role on the Arm deal in a rare media alert, a possible sign of the times. 

*This has been clarified to reflect Instacart’s first day of trading

Britain’s rebel regulator

The UK’s antitrust regulator is a new renegade in town and it’s making dealmakers nervous.

Since the UK left the European Union, the Competition and Markets Authority has gained new powers to block deals and it isn’t afraid to use them, report the FT’s Kate Beioley and Javier Espinoza.

After originally blocking Microsoft’s mega-takeover of computer game developer Activision Blizzard earlier this year, it’s now studying a new version of the deal that the regulator is keen to portray as completely different. 

Still, the original decision sharply contrasted with the view of EU regulators in Brussels, who cleared the deal with concessions.

This has advisers worried. Some described the move as a “mess” and it has brought a new era of uncertainty for mergers and acquisitions, with seasoned dealmakers unable to know which way the needle will go on the next transaction.

“The CMA is asserting itself as a highly relevant and decisive player on the world stage,” says Nelson Jung, a former director of mergers at the CMA and current partner at Clifford Chance.

The Microsoft tie-up isn’t the only example of the CMA diverging from its counterparts. 

Last year the British regulator blocked a $5bn merger between Finnish crane manufacturers Cargotec and Konecranes, prompting the companies to ditch the transaction. Brussels, on the other hand, cleared the merger subject to concessions.

Those brave enough to submit mergers for scrutiny in the UK will need to deal with a judicial review system that’s broadly in favour of the regulator. By contrast, US and EU antitrust investigators have a much higher burden of proof to justify blocking deals. 

But the UK’s entry as a new player is definitely ruffling some feathers and potentially rearranging the system of merger control, said observers.

“It throws up the question as to whether the current system is viable, given the geopolitical blocs that are forming,” said a veteran Brussels lobbyist.

Western companies’ $18bn conundrum

What do BP, Raiffeisen, Citigroup and PepsiCo have in common?

They’re among the trove of western companies that have collectively made billions of dollars in profits by continuing to operate in Russia since Moscow’s invasion of Ukraine, but can’t access the cash.

The companies’ earnings have been locked in Russia since the imposition last year of a dividend payout ban by the Kremlin on businesses from countries deemed “unfriendly” including the US, UK and all EU members.

Groups hailing from “unfriendly” countries accounted for $18bn of the $20bn in Russian profits that overseas companies reported for 2022 alone, according to an analysis by the Kyiv School of Economics, and $199bn of their $217bn in Russian gross revenue.

Many have been trying to sell their Russian subsidiaries but any deal requires Moscow’s approval and is subject to huge writedowns. Others, such as Unilever and PepsiCo, have opted to keep up partial operations in the country.

Russian officials are yet to outline “a clear strategy for dealing with frozen assets”, said Aleksandra Prokopenko, a non-resident scholar at the Carnegie Russia Eurasia Center, adding that they were “likely to explore using them as leverage — for example to urge western authorities to unfreeze Russian assets”.

As the assets remain in political limbo, companies hesitant to cut their losses at the start of the war may now be having regrets.

“Even if a company lost a lot of money leaving Russia, those who stay risk much bigger losses,” Nabi Abdullaev, a partner at consultancy Control Risks, told the FT last month.

Job moves

• Edward Tilly, the chief executive of Chicago-based exchange operator Cboe Global Markets, has resigned after the company said he failed to disclose personal relationships with colleagues. Cboe board member Fredric Tomczyk will take over as chief. 

• BP has named Kate Thomson as interim chief financial officer, following last week’s management upheaval prompted by the sudden resignation of CEO Bernard Looney.

• Sarah Rajani, Elliott Advisors’ former director of communications, has joined clean energy producer OCI Global as vice-president of investor relations and communications.

• Commodity trader Trafigura has restructured its leadership team as it prepares for the retirement of its longtime chief operating officer Mike Wainwright in March.

• Squire Patton Boggs has named Omar Momany, Baker McKenzie’s former head of corporate and mergers and acquisitions in the United Arab Emirates, as head of its corporate practice in Dubai.  

• Shearman & Sterling partners Kris Ferranti and Jonathan Newman have joined Clifford Chance’s US real estate practice in New York.

• Moelis & Company has hired Jeremy Lane, Credit Suisse’s former head of metals and mining in Asia, as a managing director in Hong Kong. The firm also hired CenterPoint Energy’s Philip Holder as a managing director for power and utilities coverage in Houston.

Smart reads

Rewriting the rules The departure of Bernard Looney is an example of how boards are stepping up their scrutiny of executive behaviour, the FT’s Brooke Masters writes.

Bargain hunting San Francisco’s property market is finally beginning to show signs of life as tech companies — particularly in the artificial intelligence space — move in at much lower prices, The Wall Street Journal reports.

If you can’t beat ‘em, join ‘em Private credit is catching on in Europe, prompting banks such as Société Générale to fraternise with the competition. But more regulatory scrutiny lies ahead, the FT’s Jonathan Guthrie writes.

News round-up

Crispin Odey urged woman he groped at work to play down incident to FCA (FT)

Revolut granted extension on annual results for second consecutive year (FT)

Copper producer Aurubis sets out €185mn hit from suspected fraud (FT)

New York firm that managed billions for Roman Abramovich sued by SEC (Bloomberg)

Carlyle takes minority stake in Captrust Financial Advisors (Barron’s)

India’s Torrent in talks with Apollo to borrow up to $1bn for Cipla bid (Reuters)

Justice department probe scrutinises Elon Musk perks at Tesla going back years (Wall Street Journal)