Despite the bumpy aftermarket performance of recent listings, the first months of 2024 are set to see a growing pipeline of US IPOs, according to advisers in the market.
The autumn listing window featured large-scale IPOs such as Softbank-backed ARM [NASDAQ:ARM], Instacart [NASDAQ:CART], Birkenstock [NYSE:BIRK] and Klaviyo [NASDAQ: KVYO], but the stocks have largely failed to hold above their IPO prices in the weeks after debut. Prospective issuers and investors alike were taken aback by the disappointing performance.
Right now, there aren't many opportunities for companies to still go public in 2023, an ECM advisor noted, citing the quick run-up to the holidays after Thanksgiving. A financial advisor agreed, adding that issuers are still very price-sensitive.
Hamilton Insurance Group launched an IPO last week where the outcome is likely to be highly scrutinised; widespread caution could mean it is the last big US deal of the year.
One advisor cited the core example of a client in the energy transition sector, which is looking to do an IPO and has already filed confidentially.
It is an attractive issuer boasting high margins and could easily list right now, he said, but management is not open to taking a punishing discount. It has opted instead to push any deal to January, said the advisor.
A tech comeback
The pipeline of hopefuls, though, is growing and advisers said RFP activity and conversations are accelerating ahead of an anticipated window of opportunity between 1Q and 2Q. One lawyer cited about 15 IPOs in his pipeline, a couple of which are seriously looking at a launch in 1Q.
“With investors, there is a clean slate feeling when you turn the calendar which is helpful,” said BNP Paribas’ Americas ECM head Evan Riley. He added that some issuers plan to hit the market between late January and early February, while another group is holding off until March.
A comeback in technology listings is expected, although at more moderate valuations, with candidates like Brightspring, Turo, Rubrik, Astera Labs and Ibotta reported to be all pondering listings next year. When contacted, the companies declined to provide updates on their plans.
“Tech has been out of favour for a while, but we are now seeing good support for deals in the sector at an appropriate discount, especially those with good backers and having gone through a sustained series of funding rounds," said David Koch, managing director with Brown Gibbons Lang & Company, where he leads the ECM team and co-leads its larger capital markets advisory group.
The consumer sector is also likely to spur candidates, with companies such as New Era and Vuori in the process of appointing IPO syndicates.
Energy transition is also set to be a larger part of the IPO pipeline, as the race for alternative resources continues and existing listed companies in the sector are looking to unlock value by listing their renewable-related units.
GameChange Solar, for instance, backed by a Koch Industries affiliate, has confidentially filed for an initial public offering that could take place as soon as next year, according to reports.
However, sources say there will be less patience for candidates where profit visibility is still clouded.
Not all the IPO candidates will be new names.
UBS's global co-head of equity capital markets Jeff Mortara said that a lot of the issuers he is advising have “pushed off Q4 plans slightly to 1Q24”, adding that there is a backlog of PE-owned companies where sponsors need to exit, as well as several large corporates mulling spin-offs as a strategic and dividend play.
BNP Paribas’ Riley explained that large-scale, positive EBITDA generative companies are likely to come first as risk appetite increases, while smaller IPOs will take a chance off the back of larger deals.
“Companies performing well are those that should be at the front end of the queue,” he said.
Next year will still largely be influenced by the interest rates cycle, with investors betting the Federal Reserve Bank will stop hiking and begin cutting them by next summer, according to the first ECM advisor.
“I'm optimistic we'll see some big names go out in 2024 and if they succeed, there is a deep pipeline of additional candidates,” the advisor said. “A lot of companies have been preparing for more than a year and are just biding their time.”
With fiscal policy still uncertain, a potential recession may curb risk appetite, especially when combined with heightened geopolitical risk.
Business performance is “key” in this environment, Moelis’ capital markets advisers Steven Halperin and Angus Whelchel explained. Companies need to show they have a defined and defensible position in the market, they said, adding that it is important to get buy-in from big institutional investors and understand the capital structure thoroughly.
“There is a lot more prep work than you would have done in the past two years, but in some way also a lot more discipline,” Halperin noted.
Two bankers noted that mammoth IPOs such as the long-mulled listing of Stripe, or Elon Musk’s SpaceX, could be game-changers if they went ahead with US listing plans, though little progress has been made so far.
Across the board, there is a general anticipation that the period between February and June will be particularly active; issuers and advisers will try to avoid any clash with a looming US presidential election timeframe in the autumn.
The major political event coming next year could precipitate more active IPO dialogue with clients earlier in the year, as companies try to get deals done before concerns regarding the election outcome become a major market focus, the Moelis team explained.
An optimistic stance is evident among the advisers, but any worsening of these risks could easily discourage new issuers from tapping the market and continuing what one lawyer described as the “worst environment for ECM since the global financial crisis.”
UBS’ Mortara, weighing the potential hurdles facing advisers, said that there are many open questions ahead.
“It is a confluence of complexity,” he said.
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