Reddit Inc.’s initial public offering will encourage tech companies to go public, said the Latham & Watkins partner who guided the $748 million transaction.
Last week “will change things,” Latham’s Rick Kline said in an interview. “The Reddit deal will change things.”
Artificial intelligence advances will help drive activity, though IPO interest will go beyond the technology, he said. “Investors will notice the strong pricing and strong trading, and that just leads into investor appetite for new issuances,” Kline said.
Reddit’s shares climbed 48% on its first trading day March 21, which gave the company a valuation near $9.5 billion on a fully diluted basis. The success raised hopes that investor appetite for newly listed companies might be heating up. The company’s shares fell by nearly 9% on March 22.
Founded in 2005, the social media platform filed confidentially to go public in December 2021, during the height of IPO activity. Its listing came the same week as a successful IPO by semiconductor connectivity company Astera Labs Inc., which raised more than $700 million.
The active week followed an IPO market that has been in the doldrums since a record-setting deluge of public listings in 2021 set an all-time record of $339 billion, according to Bloomberg data. Listings raised a mere $26 billion last year.
“We’ve been waiting the last few years for the tech IPO market to reopen,” said Kline, who practices in the San Francisco area after joining Latham in 2020 from Goodwin Procter.
Companies are often nervous about being among the first to reopen the market during such a downturn, he said. But the success of the Reddit and Astera Labs will provide more optimistic datapoints for companies.
“That will be the discussion we and others will have in boardrooms: Did the deals this week provide enough of a tailwind to provide confidence that now is a good time to go and access the public markets?” Kline said. “And I do think this week will change those discussions.”
Reddit’s fourth-largest IPO of the year pushed the amount raised by all US IPOs this year to about $8.8 billion—up around 152% from the same point a year ago, according to Bloomberg data.
Reddit is banking on a boom in artificial intelligence to bring in new deals licensing its user-generated content to train large language models. It expects to generate around $66 million in revenue from such deals this year.
Investors are interested in companies that have a positive message around changes brought from AI, he said. AI “will be part of almost every story” involving tech-related IPOs for the next several years, Kline said.
In addition to Kline, Latham’s team advising Reddit was also led by Bay Area capital markets partners Tony Richmond and Sarah Axtell.
Davis Polk represented several underwriters in the Reddit IPO. The firm’s team was led by corporate partners including Alan Denenberg and Emily Roberts. The IPO was led by underwriters Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co. and Bank of America Corp., according to Reddit’s filings.
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