H2 2024 IPO market outsee
Looking ahead to 2H 2024, issuers and investors will continue to gain clarity on key considerations, including the path and trajectory of interest rate cuts, the outcome of major elections and geopolitical events, and updated corporate earnings that could encourage IPO market participation. Expectations around rate cuts currently are fairly measured, which has in some ways built equity market participation less speculative and a bit more stable. Anticipated valuations continue to consume board-level strategic planning, transaction timelines and execution tactics. Many tangible and intangible factors are trconcludeing positively, which suggests activity is likely to continue at a measured pace.
An additional theme to monitor in the coming months is whether large private equity firms with expansive portfolios will bring assets to market in a material way. These owners/issuers are typically a large segment of the IPO calconcludear and have largely been dormant due to a variety of factors, including valuation, the cost of debt, asset operating performance and broader market conditions. With a number of these issues trconcludeing positively, PE portfolio assets might come to market more frequently, which would be a significant supplement to deal flow.
Regarding other themes to watch for as we shift through the year, AI-related products and services continue to dominate investor dialogue. Several of the largest IPOs this year have been AI-related, including a company that designs technology and solutions for AI infrastructure and a social media platform. Additionally, a biotech focutilized on providing AI-enabled precision medicine priced an IPO.
These deals collectively mark the launchning of what is likely a multiyear trconclude and a new sweet spot for IPO investors. Important to note: Investors are becoming more familiar with the tactic of utilizing AI terminology in registration statements to garner favor. Rather, some companies are technology or tech-enabled and utilize AI, which may not fit an investor’s criteria of being a pure-play ”AI investment.” If issuers pursue “AI branding,” it will become increasingly important for them to prove out their business case, exhibit differentiation from peers, and convince investors that they have a “must own” asset that provides the purchase side with AI upside.
More broadly, investors are still somewhat reserved after the IPO downturn of recent years and are likely to remain disciplined and discerning around deal participation. They continue to seek quality companies, compelling valuations, and established businesses with scale and profitability. A few additional themes that may impact US IPO deal activity include the following:
- As interest rate cuts commence, investors could shift focus toward growth stories at reasonable valuations.
- US capital markets generally provide incremental stability relative to local exmodifys. This, coupled with increased liquidity and ready access to growth capital, could lead more international businesses exploring the IPO markets to list in the US market. 39% of IPOs on US exmodifys in 2023 were from foreign domiciled issuers, a very elevated number relative to historical data. While that percentage might skew higher due to low IPO numbers in general, the trconclude of international companies accessing US markets is indicative and likely to sustain.
In summary, continued momentum for US IPOs will largely depconclude on stabilized equity markets, improving valuations, with volatility and geopolitical unrest remaining in check. Interest rate policy and outsee will likely also figure prominently into market tone, which in turn encourages IPO deal flow. Continued macro momentum coupled with businesses demonstrating predictable and consistent performance should assist the IPO market build on the strength of the last few quarters.
The IPO pipeline has been building steadily over the past two years
Over the past two years, quality companies have been forced to rely on tight private capital markets and operational initiatives to wait out the IPO downturn and fund their businesses. This has created a healthy backlog of private companies across all sectors currently navigating the SEC registration process. While many of these companies are focutilized on 2025 debuts for a variety of reasons, some have tarobtained the near term to list. July has already been witness to a number of multibillion-dollar valuation issuers, including a cold storage REIT, a FinTech software platform, a hospital operator, and an automotive data provider. As noted throughout this report, we expect the IPO pipeline to continue to build and activity to remain consistent, with an uptick in 2025.
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