Is the IPO market regaining its vigor?

Written by Greg Sichensia

It's hard to tell whether investors or startups are watching the IPO market more closely.

From a high-level perspective, the consensus seems to be that interest rates will fall at some point in the first half of 2024, and that combined with the resilience of the U.S. economy and recent GDP and inflation numbers, the IPO market will return to life.

Nasdaq CEO Adena Friedman recently explained at the Consumer Electronics Show that nearly 100 companies have recently filed for confidentiality with the SEC for initial public offerings and plan to list on Nasdaq. This suggests a significant recovery in the IPO market.

But those of us who work with new issuers almost every day know that this IPO market is nothing like the past five years.

Companies advertise things like “ESG,” “cryptocurrency,” “artificial intelligence,” and “EV” on their websites and instantly raise tens, if not hundreds of millions of dollars in private placements and public offerings. Gone are the days when you could procure it.

Forecast for the first half of 2024

First, let's look at some of the factors and trends that go beyond just falling interest rates.

First, interest rates don't just mean “cheap money” for startups and emerging technology companies. It also means that the CDs and Treasury bills that retail and institutional investors have parked their money in over the past two years will no longer yield more than 5%. Those investors have been wise and will continue to be wise. That means it's time to exit those assets and move them elsewhere, creating even more opportunities for issuers and underwriters to attract shareholders.

Additionally, some of the world's largest public companies, such as Nvidia, Microsoft, and until a few weeks ago, Tesla, have grown recently, pushing the market to all-time highs. Investors will be satisfied, get the same profits, and start looking for high growth opportunities in IPOs.

Without delving too deeply into politics, some investors and banks are betting on more deregulated capital markets, confident of former President Trump's victory. There has always been a push and pull between Democratic and Republican candidates, with the former advocating for stronger regulation that could slow capital market activity, while the latter creating a more friendly environment for issuers and underwriters. That's what I'm aiming for.

Not that every bank or company raising capital believes this, but this is a constant theme in the market feedback we receive.

The biggest trend we're seeing in the U.S. IPO market right now is more mature companies looking to go public. Reddit is a brand that has been around forever and is rumored to go public several times. This is a typical example. The other company, Amer Sports, which makes Wilson tennis rackets, is targeting a valuation of up to $8.7 billion in an initial public offering in the United States.

Many people, including myself, believe that this transaction could be a bellwether event for the IPO market, and if successful, it could soon lead to a flurry of public offerings.

Finally, international companies are seeking exposure to the U.S. capital markets because of the U.S. economy's ability to not only avoid recession but actually grow.

This is seen in many parts of the world, particularly in Southeast Asia and parts of Europe, where revenue-generating, high-growth technology and consumer brands are thriving. Local companies see the US as a suitable venue for liquidity events and are working with banks to help raise capital.

It's important to remember that all of this is subject to change at any time. Concerns over when interest rates will fall have already led to some volatile trading days and hesitancy for a 2024 IPO.

I think we'll see a lot of companies quietly testing over the next few months, and we'll see a real uptick in filings and listings in the second quarter. Until then, keep an eye on Fed guidance, inflation and employment data, and exciting companies seeking exposure to the resilient U.S. stock market.

Greg Sichensia, a founding member of Sichensia Los Ferens Carmel LLP, advises public and private companies on all securities law matters. He was also responsible for structuring innovative M&A transactions. Throughout his career, he has represented many companies and investment banks in their IPOs of securities, as well as numerous public listings in private equity financing transactions (PIPEs) and resale registration statements related to these financings. I have been representing companies.

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Illustration: Dom Guzman