Cava pops on debut as US restaurant chain tests appetite for IPOs

Shares in US restaurant chain Cava almost doubled on their New York debut on Thursday, sparking hopes its success would spur others to follow it to market and help end a capital-raising drought.

Cava’s pop made it the best opening-day performance by a US initial public offering of more than $300mn in almost two years, according to data provider Dealogic.

The Mediterranean-style chain, which describes itself as bringing “heart, health, and humanity to food” raised $318mn from its IPO.

Cava’s gains came in spite of aggressive pricing. It initially raised the range in which it was offering its shares, then priced them 10 per cent above the top end of that new range at $22 a share.

Shares in the company rose 99 per cent on Thursday to $43.78, putting the lossmaking company’s market capitalisation at $4.9bn.

While the benchmark S&P 500 has risen 15 per cent this year, market sentiment has been less assured as investors worried about the risk of a recession and fretted about the rally’s reliance on a handful of giant technology companies including Nvidia, Microsoft and Amazon.

On Wednesday, hours before Cava priced its deal, the Federal Reserve held interest rates steady for the first time in 15 months following a campaign that has pushed official borrowing costs from almost zero to a range of between 5 per cent to 5.25 per cent.

IPOs have raised $8bn in the US this year, according to Dealogic. That is approaching the $8.6bn raised in all of 2022 — a year in which US markets fell heavily — but is far from the $154bn achieved in the boom of 2021.

Bankers cautioned against expecting a rush of deals.

“I continue to expect a gradual reopening of the market, not an opening of the floodgates,” said Brittany Collier, head of consumer and retail equity capital markets at JPMorgan. “Clearly there’s demand for high-quality companies though.”

JPMorgan, along with Jefferies, led the deal, but Collier declined to comment on the transaction itself.

The IPO drought is not only a US problem. Globally, companies have raised $56bn, down almost a quarter from levels this time last year and 70 per cent lower than in the 2021 boom.

On Wednesday in London soda ash producer WE Soda pulled plans to sell shares worth up to £1bn after investors balked at the price the company wanted. It was expected to be the UK capital’s biggest float this year.