The US is bracing for a return of IPOs as private firms seek to offload assets

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Wall Street bankers are gearing up to overhaul public services as private sector groups look to take advantage of the strong US financial markets to offload some of them.

Several privately-backed groups have already filed paperwork with securities regulators for IPOs, including medical device company Medline and software maker Genesys.

Bankers and analysts expect a series of listing announcements in the first half of 2025, following the blockbuster gains by US stocks in 2024 and the hope that president-elect Donald Trump will reduce regulations and tax.

Investors and bankers were also encouraged by the strong gains in prices after the latest deals. Shares in nine of the 10 largest IPOs of 2024 ended the year above their price, half of them – led by social media group Reddit – recording triple-digit gains.

“Successful growth and increased performance is the key,” said Eddie Molloy, co-head of capital markets at Morgan Stanley. “With (economic) conditions that are more certain, more business-oriented than the Fed (interest rate cuts), we should be more busy.”

The expected acceleration in US IPOs comes after a drought over the past three years as the Federal Reserve’s aggressive rate hike campaign, which begins in 2022, dampened investor demand for listings and new.

Higher rates reduce demand for assets that are considered high risk, or that are valued with the promise of high growth in the future – two common features of newly listed companies. Economists have lowered their forecasts for how quickly the Fed will cut interest rates over the next 12 months, but still expect rates to drop further after the central bank announced a rate cut. three times in a row by the end of 2024.

The US list raised $32bn in 2024, excluding special purpose buyout companies, according to Dealogic, about 60 percent by 2023.

Few observers are predicting a return to post-pandemic chaos, with central government and central bank stimulus programs boosting markets and leading to a surge in IPOs that topped $150bn in 2021 .

However, bankers are confident that capital market activity will top the pre-2020 average of $38bn.

“Large (private) IPOs will be the most important topic,” Molloy said.

The trend is driven by private firms under pressure to return money to sponsors after a long drought. It also shows a change in investor appetite after many were burned by bad bets on the start of losses during the IPO crisis.

“These are companies that are generally bigger and have more capital, and therefore will be attractive to 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 a lot of enthusiasm for medium-sized businesses. We’re not going to see that for a very long time.”

Fintech will also be a topic of attention in the first half of 2025, with Sweden’s buy now, pay later Klarna group expected to be one of the first major companies to be funded to operate through confidence in the market.

San Francisco-based mobile banking group Chime has also renewed its plans to go public after initially planning to write more than two years ago. Chime has been in talks with investors for a valuation of between $15bn and $20bn – the same size as Klarna – according to two people familiar with the discussions, although the technology and financial assets have made strong gains since in last month’s US election, which could help boost. its final value. Chime declined to comment.

Some observers are surprised by the relative calm in the IPO market given the broad strength of US stocks over the past two years, with the S&P 500 up 70 percent from its 2022 low. thus, most of those gains have been driven by a small number of very large companies, rather than the smaller groups that typically drive their shares.

Ryan Nolan, head of investment software at Goldman Sachs, said the expansion of stock market gains in the second quarter of 2024 helped boost confidence. “There’s a lot of excitement and a lot of energy,” he said.

Many private equity firms acquired large amounts of capital at high prices in 2021, which slowed the pace of other deals and made executives reluctant to accept new capital at a low price.

Samantha Lau, chief investment officer for small and medium-sized growth equities at AllianceBernstein, said private investors are now showing a “realistic attitude” to valuations.

“Enough time has passed since 2021 that things will have to start to thaw,” he added.