From Reddit to Syngenta Group to CVC Capital Partners, debuts meant to restore sickly global initial public offering activity to health have been pushed back, sometimes repeatedly. Companies and investors have yet to entirely bridge the gap between their respective valuation expectations, set during boom times fuelled by cheap money.
Though bankers remain broadly upbeat about 2024, even they admit that after months of headfakes failed to sustain activity, a true return to health could take months. “It would be premature to say that there’s a normalized IPO market right around the corner,” said Eddie Molloy, Morgan Stanley’s co-head of equity capital markets Americas.
Nearly $130 billion has been raised through global IPOs this year, tracking for the worst since 2009, data compiled by Bloomberg show. With mediocre post-debut trading in several of the year’s largest offerings giving new entrants pause, the return to a typical IPO market may drag on as late as – whisper it softly – 2025.
While the coming year’s IPO activity should provide a meaningful uptick from 2023, 2025 is when “we go back to pre-Covid normals,” said Achintya Mangla, JPMorgan Chase’s global head of equity capital markets. The bank is taking a view over the longer-term IPO “cycle holistically as opposed to 2024 versus 2025,” he said.
Delayed IPOs
It’s not unusual for companies to plan their first-time share sales well in advance. Still, the delays faced by some of the largest potential issuers go some length to explaining IPO markets in 2023.
CVC, one of Europe’s biggest private equity firms, had been exploring an IPO for several years before preparing in October to kick off a listing in Amsterdam, people familiar with the matter said. A month later it was all off the table. With European IPO markets in a parlous state – they have raised just $13.9 billion this year, and are on track for the lowest total in at least a decade, data compiled by Bloomberg show – the risk may have been deemed too great.
Syngenta started preparations even earlier, moving in 2019 only two years after its Chinese state-backed buyer completed its takeover of the Swiss giant. By 2023 the pieces appeared to be in place. Not long after, China’s securities regulator moved to cool the country’s then-robust IPO market and stabilize stocks to prevent spillover from an escalating real estate crisis. In November, Syngenta officially delayed its listing to late 2024.
Reddit tapped banks for a potential IPO as soon as March 2022, Bloomberg News reported that year. Coincidentally, that was the same month that the Federal Reserve began its rate-hiking campaign. Now, with the end of the cycle and the bond market pricing in numerous rate cuts, and a broad-based rally having pushed the benchmark S&P 500 higher by 23% this year and the Cboe Volatility Index, or VIX, near the lowest since January 2020, Reddit is getting ready for a 2024 debut, people familiar with the matter have said. More stable fundamentals have stirred optimism that the range of companies tapping public investors next year will spread to growth-oriented firms.
“There will be more IPOs to come to market with the possibility that rates may have peaked,” said Jim Cooney, head of Americas ECM at Bank of America. “Investors have returned to looking for growth assets and IPOs provide that option.”
Another factor that could draw companies to strike deals: time. The valuation gap — the difference between how sponsors and management of private companies perceive themselves, sometimes based on previous valuations from pre-IPO funding rounds and what public investors are willing to pay — remains a sore point.