IPO markets may return to normal in 2024 after 2-year slump

Renaissance Capital sees IPO markets back on the upswing in 2024 

The market for initial public offerings (IPOs) is poised for a potential upswing in 2024, fueled by an improved outlook and expectations of three interest rate cuts from the U.S. Federal Reserve, which are expected to invigorate growth-oriented companies, according to investment bank Renaissance Capital. 

The bank foresees a return to normalcy in 2024 following a two-year downturn in IPO activity. 

This year witnessed high-profile IPOs from companies like UK-based chip designer Arm, consumer health company Kenvue, and storied German shoemaker Birkenstock. In total, 107 offerings raised $19.4 billion, falling below the 10-year average but marking a 49% rebound in deal count from 2022. Nearly twice as many IPOs raised $100 million or more. 

Up to this point, the current year is on track to become the second weakest for equity capital markets (ECM) transactions in the past decade, trailing behind only 2022, with a total of $532 billion raised, as per data from Dealogic cited by Reuters. For IPOs, 2023 has witnessed the lowest levels of activity since 2016. 

Despite investor optimism and media buzz, IPOs in 2023 have lost an average of 19% from their debuts. Less than one-third of IPOs were trading above their offering price as of December, according to Renaissance. The tech sector saw 24 listings, a 21% increase from 2022, while healthcare had 19 listings. 

2023 IPO trend: Cornerstone investors attempt to provide stability amid volatile markets 

A notable trend in 2023 was the prominence of cornerstone investors, who provided a degree of stability amid market volatility. These investors commit to participate in listings in advance, with entities like Norway’s sovereign-wealth fund and others backing companies such as Birkenstock and grocery delivery firm Instacart. 

Linkage Global, a Japanese cross-border e-commerce services company, entered the IPO arena this week, raising $6 million and hitting the public markets on Tuesday after pricing its shares at the lower end of the targeted range. However, it closed down 22% on its first day of trading.

Looking ahead, Renaissance Capital sees as many as 170 IPOs in 2024, potentially raising up to $45 billion. Notable potential listings attracting investor interest include social media site Reddit and data platform company Databricks. 

IPOs in 2024: Goldman hopeful for upcoming year, UBS says “pre-conditions in place” for recovery 

David Ludwig, global head of ECM at Goldman Sachs, was optimistic in his 2024 IPO forecasts. He told the Reuters news agency: 

"The IPO markets will be much better in 2024 than they were this year, and my gut tells me that both volumes and breadth of access will progress as we move through the year”. 

While Ludwig is optimistic in his forecast for 2024, the projection remains distant from the boom seen in 2021. The year may see some big names go public, such as Singapore-based fashion group Shein go public at a reported valuation as high as $90 billion, as the company recently filed paperwork for an IPO in the U.S. 

The buyout group Permira is also gearing up to list Golden Goose, renowned for its luxury distressed sneakers, in Milan, with sources indicating a deal that could raise close to 1 billion euros ($1.09 billion). 

In the coming months, dealmakers are anticipating buyout funds to play a pivotal role as they face the pressure to return capital to investors, particularly in the aftermath of one of the slowest years for private equity exits in a decade. 

Gareth McCartney, global co-head of ECM at UBS, told Reuters:

"The pre-conditions are in place for IPO markets to re-open, and private equity owns large assets which are attractive to public market investors”. 

As market dynamics evolve, some asset managers are exploring the possibility of an IPO in 2024, mirroring the approach of their portfolio companies. This strategy aims to secure funding for expansion and facilitate stake sales for owners. 

CVC Capital Markets, a prominent player in the UK, may revive listing plans after deferring a proposed IPO earlier this quarter, while General Atlantic is reportedly planning a listing in the United States. 

However, bankers are cautioning that the market's reception of a broader range of companies may depend on the success of a few key IPOs in the new year. The U.S. presidential election is also anticipated to impose constraints on companies' access to equity capital markets in the latter half of 2024. 

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