Dealmaking on Wall Street has dried up, and it's costing big banks a fortune. Kim Kardashian could fix that.
What's happening: Goldman Sachs reported on Wednesday that its investment banking revenue declined by 20% in the second quarter of 2023. Overall, profit in the quarter fell by 58% from a year ago, to $1.2 billion.
"Activity levels in many areas of investment banking hover near decade-long lows, and clients largely maintained a 'risk off' posture over the course of the quarter," said Goldman's CEO David Solomon on the bank's earnings call. That means clients are worried about making bets in an uncertain economic environment.
He's right — global dealmaking has sunk to its lowest levels in more than a decade, according to data from Dealogic. For example, initial public offerings in the stock market have almost dried up entirely.
However, experts say that there are plenty of healthy companies waiting to make their public debut, they just don't want to be the first ones out. Once the faucet turns on the deals should be plentiful.
"There are still an incredible number of companies that are looking to go public, " said Ro Sokhi, partner at accounting and advisory firm UHY.
He points to Cava, the Mediterranean fast-casual restaurant chain, as an example of a company that recently went public and did well. The company's stock is up more than 27% since its IPO this spring. Cava helped foster some green shoots throughout the market, he said.
"There's currently a feeling of cautious optimism," he said.
But it isn't quite enough to unplug the flow.
That's where Kim Kardashian comes in.
Skims, the clothing line she co-founded in 2019, just raised $270 million in its latest fundraising round, valuing the company at about $4 billion, according to a Dealbook report. In total, Skims has raised about $670 million in just four years.
This latest round was led by Wellington Management, a firm known for taking companies public. Skims also recently hired a chief financial officer, Andy Muir, who previously worked at Nike. Bringing a CFO on board is often a sign that an IPO is coming.
Jens Grede, Skim's CEO, recently told Dealbook that stock investors have shown an increased interest in consumer-oriented businesses like Skims and that an IPO is something the company wants. "At some point in the future, Skims deserves to be a public company," he said.
So could Skims be the big IPO that clears the pipeline for the rest?
If a Skims IPO were to succeed, "companies, CFOs and investors in general will see this as a very positive sign," said Sokhi. "It will signal to investors that there's an opportunity here for an exit or an IPO. That's what we saw in 2021 a gangbusters year for dealmaking that could potentially be echoed this year.
Yes, but: "Really public-facing companies with big name recognition are just in a different category than a lot of the other companies looking to IPO," said Megan Penick, public securities chair and a partner at law firm Michelman & Robinson, where she has spent nearly two decades assisting companies go public.
Betting on a Kardashian-backed company like Skims is actually pretty cautious and won't necessarily translate into IPO buzz for companies that are tech and science-focused that don't receive public recognition. "Until investors are really ready to open their pocketbooks and be less cautious, we're not necessarily going to see an opening of the IPO floodgates," she said.
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