Companies are increasingly piling into a re-energized market for initial public offerings, and if the Federal Reserve finally stops punting on interest rate cuts, the trend may have room to run.
The US IPO rebound has been steadily gaining steam, punctuated by Wednesday’s pricing of $1.4 billion across three first-time share sales. The burst of activity is another positive step toward a market whose volume resembles the years before the pandemic, rather than a historic boom followed by a painful bust.
With more than two dozen offerings of $100 million or more hitting the US market this year, and around $13.6 billion raised in the year to date — more than three times as much as in the same period in 2023, according to data compiled by Bloomberg — companies in IPO-ready mode are forging ahead.
“There is a strong inclination because of two years of scorched earth to not miss a viable window,” Mark Schwartz, Ernst & Young’s Americas IPO and special purpose acquisition company advisory leader, said in an interview. “The broadening speaks to the overall health of the IPO market.”
The potential for a flurry of interest rate cuts had been a selling point for at least a tepid IPO revival. With the market dialing back expectations for the Fed to bring rate relief, the impact on IPOs is yet to be seen — and those waiting in the wings to go public aren’t slowing down their plans.
Traders expect the first rate cut sometime at the end of the year, with this week’s US economic data driving investors to waver on whether it will come in November or December. The timing of the first move could add pressure to debt-laden companies owned by private equity firms and others that had tapped the debt market with expectations that rates will come down.
“The uncertainty around three cuts or down to no cuts creates uncertainty for any companies that are significantly levered,” said Mike Bellin, IPO services leader at PricewaterhouseCoopers. “Investors are still selective, there are more options across companies that are looking to access the capital markets but a lot of the companies that have been coming to market are unique.”
That dynamic has affected a smattering of notable deals this year. KKR & Co.-backed BrightSpring Health Services Inc. has declined 20% after pricing its offering under a marketed range, and the company’s debt load was cited as a factor in the retreat.
For the most part, listings have shaken off the uncertainty. Rubrik Inc. and Loar Holdings Inc. on Thursday defied a bumpy macro session, rising above their IPO prices on their first day as public companies, while the third debutant, Marex Group Plc, ended nearly flat.
Optimistic themes have reigned instead, with excitement around artificial intelligence spurring Astera Labs Inc. and Reddit Inc. to sit among the top performing US IPOs to raise more than $200 million, data compiled by Bloomberg show. Astera’s shares have more than doubled, and Reddit’s are up about 30%.
The range of companies tapping investors is set to broaden further next week, led by travel company Viking Holdings Ltd.
Despite uncertainty around when the first Fed cut will take place, traders have long bought into the expectation that we’re entering an easing cycle. For investors, dealmakers and would-be issuers, that’s all good news, according to Torsten Slok, chief economist at Apollo Global Management.
“Anyone in the deal market with a three to five year horizon is being told clearly by the Fed that the next move in rates is lower and that’s a tailwind to all capital markets activity,” he said in an interview.
Once newly public companies manage to clear the hurdles of pricing and gaining on their first trading day, they’re still on a short leash from investors given the lack of a track record reporting results. Economic indicators, and every comment from Fed chair Jerome Powell, will be closely observed.
“If stocks that are coming public are trading well in the after-market that’s one piece of the puzzle,” says Greg Rice, a partner and director with Boston Consulting Group. “But you need to be confident that the Fed won’t take your knees out in the next six months — the market will punish these newer companies more severely given the lack of a trading history.”
This article was provided by Bloomberg News.