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Wall Street bankers are gearing up for a revival in initial public offerings as private equity groups seek to tap buoyant US equities markets to offload some of their flagship holdings.
Several private equity-backed groups have already filed paperwork with securities regulators for IPOs, including medical devices company Medline and software maker Genesys.
Bankers and analysts are expecting a flurry of listing announcements in the first half of 2025, after blockbuster gains by US stocks in 2024 and on hopes president-elect Donald Trump will cut regulations and taxes.
Investors and bankers have also been encouraged by strong share price gains following recent deals. Shares in nine of the 10 largest IPOs of 2024 ended the year above their listing price, with half of them — led by social media group Reddit — recording triple-digit gains.
“Successive improvement and more activity, that’s the headline,” said Eddie Molloy, global co-head of equity capital markets at Morgan Stanley. “With an [economic] backdrop that is a bit more certain, more of a pro-business bent to regulatory policy and the Fed [cutting interest rates], we should be busier for sure.”
The expected rush of US IPOs comes after a drought in the past three years as the Federal Reserve’s campaign of sharp rate rises, which began in 2022, curbed investor demand for new listings.
Higher rates reduce demand for assets that are considered high-risk, or which are valued on the promise of growth far in the future — both common features 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 nonetheless expect rates to fall further after the central bank announced three consecutive cuts in late 2024.
US listings raised $32bn in 2024, excluding special purpose acquisition companies, according to Dealogic, up almost 60 per cent on 2023.
Few observers are predicting a return to the dealmaking mania of the pandemic period, when huge government and central bank stimulus programmes boosted markets and led to a surge in IPOs that peaked at $150bn in 2021.
However, bankers are hopeful that equity capital markets activity will top the pre-2020 average of $38bn.
“Large [private-equity backed] IPOs will be the most important theme,” Molloy said.
The trend is partly driven by private equity firms under pressure to return cash to backers after the long dealmaking drought. It also reflects a shift in investor appetite after many were burnt by bad bets on lossmaking start-ups during the pandemic-era IPO rush.
“These are companies that generally speaking are larger and more profitable, and will therefore be more palatable for 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 significant enthusiasm for mediocre businesses. We won’t see that again for a very long time.”
Fintech will also be a closely watched theme 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 brave the market.
San Francisco-based mobile banking group Chime has also renewed its plans to go public after initially aiming to list more than two years ago. Chime has previously discussed with investors a valuation of between $15bn and $20bn — a similar size to Klarna — according to two people familiar with the talks, though tech and financial stocks have made strong gains since last month’s US election, which could help lift its final valuation. Chime declined to comment.
Some observers have been surprised by the relative quiet in IPO markets considering the broader strength in US stocks over the past two years, with the S&P 500 rising almost 70 per cent from its 2022 lows. However, much of those gains have been driven by a small number of very large companies, rather than the smaller groups that typically float their shares.
Ryan Nolan, co-head of software investment banking at Goldman Sachs, said the broadening of stock market gains in the second half of 2024 had helped confidence. “There’s a lot more excitement and momentum,” he said.
Many private companies secured huge amounts of funding at inflated valuations in 2021, which reduced the urgency for further deals and made executives reluctant to accept new cash at a marked-down valuation.
Samantha Lau, chief investment officer for small and mid-cap growth equities at AllianceBernstein, said private investors were now showing a “more realistic attitude” towards valuations.
“Enough time has passed since 2021 that things will have to start to thaw,” she added.
