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Wall Street bankers are preparing to revive initial public offerings, as private equity groups seek to take advantage of buoyant US stock markets to offload some of their key holdings.
Several private equity-backed groups have already filed paperwork with securities regulators for initial public offerings, including medical device company Medline and software maker Genesys.
Bankers and analysts expect a wave of listing announcements in the first half of 2025, following big gains in US stocks in 2024 and on the hope that President-elect Donald Trump will cut regulations and taxes.
Investors and bankers were also encouraged by strong gains in stock prices after recent deals. Shares in nine of the ten largest IPOs of 2024 ended the year above their listing price, and half of them — led by social media group Reddit — posted triple-digit gains.
“Sequential improvement and more activity, that's the headline,” said Eddie Molloy, global co-head of capital markets at Morgan Stanley. “With the (economic) backdrop becoming a little bit more certain, more pro-business, pro-regulatory and the Fed (lowering interest rates), we should definitely be busier.”
The expected rush of U.S. IPOs comes after a drought in the past three years as the Federal Reserve's campaign of sharp interest rate increases, which began in 2022, curbed investor demand for new listings.
Higher rates reduce demand for assets that are considered high risk, or that are valued on the promise of growth far into the future – both common features of newly listed companies. Economists have trimmed their expectations for how quickly the Fed will cut interest rates over the next 12 months, but they still expect interest rates to fall further after the central bank announced three successive cuts in late 2024.
US listings raised $32 billion in 2024, excluding SPACs, according to Dealogic, up nearly 60 percent from 2023.
Few observers expect a return to the pandemic-era deal-making mania, when massive government and central bank stimulus programs boosted markets and led to a surge in initial public offerings that peaked at $150 billion in 2021.
However, bankers are hopeful that capital markets activity will exceed the pre-2020 average of $38 billion.
“Large IPOs (backed by private equity) will be the most important topic,” Molloy said.
The trend is partly because private equity firms are under pressure to return cash to backers after a long deal-making drought. It also reflects a shift in investor appetite after many were burned by bad bets on loss-making startups during the peak of pandemic-era initial public offerings.
“These companies are generally larger and more profitable, and therefore will be more palatable to public market investors,” said Jeremy Abelson, founder and portfolio manager at Irving Investors, a growth-focused fund that invests in private and public companies. “The difference between now and 2021 is that in 2021 there was a lot of enthusiasm for midcaps. We won't see that again for a very long time.”
Fintech will also be a closely watched topic in the first half of 2025, with Swedish buy now, pay later group Klarna expected to be one of the first large venture-backed companies to challenge the market.
San Francisco-based mobile banking group Chime has also renewed its plans to go public after initially aiming for a listing more than two years ago. Chime previously discussed with investors a valuation of between $15 billion and $20 billion — a similar size to Klarna — according to two people familiar with the talks, though technology and financial stocks have posted strong gains since the U.S. election last month, which could help push interest rates higher. . Final evaluation. Chem declined to comment.
Some observers have been surprised by the relative calm in IPO markets, given the broader strength in US stocks over the past two years, with the S&P 500 up about 70 percent from its lows in 2022. However, much of these gains have been driven by… A small number of very large companies, rather than the smaller groups that typically go public.
Extending stock market gains in the second half of 2024 helped confidence, said Ryan Nolan, co-head of investment banking at Goldman Sachs. “There is a lot of excitement and momentum,” he said.
Many private companies received huge amounts of funding at inflated valuations in 2021, reducing the urgency for more deals and making executives reluctant to accept new money at a low valuation.
Private investors are now showing a “more realistic attitude” toward valuations, said Samantha Lau, chief investment officer for small- and mid-cap growth stocks at AllianceBernstein.
“Enough time has passed since 2021 for things to start to thaw,” she added.
