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Wall Street bankers are gearing up for a revival of initial public offerings as private equity groups look to take advantage of buoyant US stock markets to offload some of their flagship holdings.
Several private equity-backed groups have already filed with securities regulators for IPOs, including medical device company Medline and software maker Genesys.
Bankers and analysts expect a flurry of listing announcements in the first half of 2025, following a big rally in U.S. stocks in 2024 and hopes that President-elect Donald Trump will cut regulations and taxes.
Investors and bankers were also encouraged by the strong rally in share prices following recent deals. Shares in nine of the 10 largest IPOs of 2024 ended the year above their listed price, with half of them — led by social media group Reddit — posting triple-digit gains.
“Sequential improvement and more activity, that’s the headline,” said Eddie Molloy, global co-head of equity capital markets at Morgan Stanley. “With an [economic] a background that is a bit safer, more pro-business leaning towards regulatory policy and the Fed [cutting interest rates]surely we should be busier.”
The expected surge in U.S. IPOs comes after a three-year drought as the Federal Reserve’s campaign to hike rates starting in 2022 dampened investor demand for new listings.
Higher rates reduce demand for assets that are considered high-risk or that are valued based on the promise of growth in the distant future — both common characteristics of newly listed companies. Economists have scaled back their forecasts for how quickly the Fed will cut interest rates over the next 12 months, but still expect rates to fall further after the central bank announced three consecutive cuts in late 2024.
U.S. listings raised $32 billion in 2024, excluding special-purpose acquisitions, according to Dealogic, up nearly 60 percent from 2023.
Several observers predict a return to the deal-making mania of the pandemic era, when massive government and central bank stimulus programs boosted markets and led to a surge in IPOs that peaked at $150 billion in 2021.
However, bankers hope that equity market activity will exceed the pre-2020 average of $38 billion.
“The big one [private-equity backed] The IPO will be the most important topic,” said Molloy.
The trend has been fueled in part by private equity firms under pressure to return money to backers after a long deal drought. It also reflects a change in investor appetite after many were burned by bad bets on loss-making start-ups during the pandemic-era IPO rush.
“These are companies that are generally larger and more profitable, and therefore will be more acceptable to public market investors,” said Jeremy Abelson, founder and portfolio manager of 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 significant enthusiasm for mid-caps. 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 major venture-backed companies to boldly enter the market.
San Francisco-based mobile banking group Chime has also renewed its plans to go public after initially looking to go public more than two years ago. Chime previously talked to investors about a valuation of between $15 billion and $20 billion — a similar size to Klarna — according to two people familiar with the talks, although tech and financial stocks have made strong gains since last month’s U.S. election, which could help boost its final valuation. . Chime declined to comment.
Some observers were surprised by the relative quiet in the IPO market given the broader strength in U.S. stocks over the past two years, with the S&P 500 up nearly 70 percent from 2022 lows. However, most of these gains were driven by a small number of very large companies, rather than smaller groups that typically sell their shares.
Ryan Nolan, co-head of software investment banking at Goldman Sachs, said a pick-up in stock market gains in the second half of 2024 helped confidence. “There’s a lot more excitement and momentum,” he said.
Many private companies have secured huge amounts of financing at inflated valuations in 2021, which has reduced the urgency for further deals and made executives reluctant to accept new cash at reduced valuations.
Samantha Lau, chief investment officer for small and mid-caps at AllianceBernstein, said private investors are now showing a “more realistic attitude” to valuations.
“From 2021, enough time has passed that things must start to thaw,” she added.
