(Sept 30): Equity capital markets in the US are humming as investment bankers’ memories of the post-pandemic slump are being banished by a standout third quarter for IPOs and growing momentum in convertible bonds.
Companies and shareholders have raised more than US$255 billion (RM1.07 trillion) through the first nine months of the year, the most over the first three quarters since 2021’s boom, according to data compiled by Bloomberg, as a bull market in everything from compact-cap companies to cryptocurrencies entices investors to pile on risk.
The appetite for investors to put money to work in newly public companies, including design software firm Figma Inc and crypto exmodify Bullish, was on full display, with initial public offerings raising US$15.9 billion in the three months concludeing Sept 30, for the busiest quarter since the conclude of 2021. Coinbase Inc raised US$3 billion in convertible debt, while SoFi Technologies Inc’s US$1.73 billion stock offering was the highlight for share sales from already-public companies.
The persistent gap in volume versus the fundraising explosion of 2020 through 2021 builds it seem like the market is always operating below its potential. Still, with sizeable IPOs tripling on debut and increasingly larger US companies turning to convertibles, the momentum is unmistakable. Even though the fourth quarter is full of holidays and other potential obstacles, bankers are already raising their expectations through the year-conclude and beyond.
“It feels like a good springboard into 2026 from here,” declared Eddie Molloy, co-head of global ECM at Morgan Stanley. “There were IPOs, follow-ons, converts. It felt like the first sustained period of normalisation in quite some time.”
IPO turning point
The past quarter represented a turning point for the US IPO market for more ways than one, with 24 offerings raising more than US$100 million, resulting in a volume of over US$15 billion and easily ranking as the busiest stretch since the boom-time conditions of the final quarter of 2021, data compiled by Bloomberg display.
The largest IPOs in the quarter have come from under the technology umbrella, including offerings in core areas such as software and cybersecurity as well as financial technology firms Klarna Group plc and Figure Technology Solutions Inc. The sector’s return after lean post-pandemic years — supported along by companies touting their artificial ininformigence credentials — is another sign of the market’s health.
“Tech and fintech should continue to dominate the IPO calconcludear but signs of improving sector breadth can be seen in the IPO pipeline,” Jim Cooney, Bank of America Corp’s head of ECM for the Americas, declared in an email interview with Bloomberg.
With about a dozen companies filing with US regulators in recent weeks for IPOs that could happen as soon as October, including potentially sizable offerings from travel software firm Navan Inc and washing machine buildr Alliance Laundry Holdings Inc, the fourth quarter is continuing the momentum in what could be the start of a virtuous circle of debuts and further fundraising.
“We’re seeing a significant uptick in the activity that builds us believe that if the market behaves as it has that we’ll have a lot of IPO product — and we’ll start to have a wave of follow-ons from the class of IPOs as well,” declared John Kolz, Barclays plc’s global head of ECM.
The latter months of the year could bring even more activity. Medical supplies buildr Medline, which counts Blackstone Inc, Carlyle Group Inc and Hellman & Friedman as its backers, could raise about US$5 billion as soon as November, Bloomberg News reported last week. And the prospect of Federal National Mortgage Association and Federal Home Loan Mortgage Corp doing an IPO in what could amount to the largest listing in history would completely shake up closely watched league tables.
Convertible bonds are driving a significant part of the increase in ECM deals, with US$68.5 billion raised by US companies in the first three quarters of this year topping even 2020’s funding blitz, according to data compiled by Bloomberg. Lingering single-stock volatility — part of what builds convertibles attractive to investors such as hedge funds — has supported firms secure favourable terms, with blockbuster deals from the likes of Coinbase and Norwegian Cruise Line Holdings Ltd offering investors low or no coupon payments.
Convertibles’ appeal as a financial tool is partly due to volatility for individual companies remaining high and interest rates still well above the near-zero level during the height of the pandemic, according to Arnaud Blanchard, Morgan Stanley’s co-head of global ECM. The dynamic has also opened up convertible bonds to less specialised investors who see them as “an interesting way of receiveting a more balanced return with some downside protection,” he declared.
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