David Kaufman Discusses Reasons Behind Stock Drops in Fashion IPO Market
October 16, 2023
Fashion brands have been showing a growing interest in
going public after a quiet period during the pandemic. Recent IPOs, such as
Birkenstock, have garnered attention, but they have also faced challenges.
Birkenstock, for instance, saw its share prices drop by 12% on the first day of
trading. This trend of initial stock drops can be attributed to factors like
rising interest rates, economic uncertainty, and inflated valuations.
For Glossy, Thompson Coburn Partner David Kaufman
states, “Rising interest rates have made it more expensive for companies to
borrow money, impacting their profitability, while also making stocks and IPOs
a less attractive investment alternative than bonds with a higher yield…Because
of numerous shocks to the economic system — relatively high interest rates,
high inflation, threats of [a government] shutdown, the war in Ukraine — the
markets have had wild swings up and down. Markets hate uncertainty and turmoil,
leading to poor performance.”
Companies are increasingly entering the public market with
overpriced shares, which can lead to a negative trajectory for public companies.
Some brands have even deliberately reduced their valuations before going public
to avoid this situation. However, going public still offers access to a larger
pool of capital, which can be valuable. Despite the challenges, there are
potential benefits for fashion brands to go public, provided they can navigate
the current market volatility.
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