Bankers advising companies on stock market listings are hopeful that the new year will bring a recovery in initial public offerings after the U.S. Federal Reserve signalled it may start reversing the fastest escalation in interest rates in decades.
"The IPO markets will be much better in 2024 than they were this year, and my gut tells me that both volumes and breadth of access will progress as we move through the year," said David Ludwig, global head of equity capital markets (ECM) at Goldman Sachs.
That positive call comes after a tough year for bankers. So far, this year stands to be the second-worst for ECM transactions in the last decade after 2022, with $532 billion raised to date, according to Dealogic data.
For IPOs, in particular, 2023 has seen the lowest levels of activity in since 2016.
Some of those that listed this year saw their share prices drop in the aftermarket, including chipmaker Arm Holdings and sandal maker Birkenstock.
Many of those stocks are now trading above their issue price, amid a global rally in equities fuelled by growing consensus that interest rates have topped out.
Markets are currently pricing in around 160 basis points of interest rate cuts from the Fed next year, while investors also think U.S. economy will avoid a major recession - both expectations reinforced by the latest economic data.
"There is a clear understanding that we are, at worse, at a pause in the increase of interest rates and, at best, at the beginning of what could be a decline of interest rates," said Stephane Boujnah, CEO of European stock exchange group Euronext. This would prompt investors to shift assets from bonds to shares, he said.
The positive forecast from Goldman Sachs' Ludwig for 2024 is still far off the boom times of 2021. That said, the coming year could see Singapore-based fashion group Shein go public at a reported valuation as high as $90 billion, after recently filing paperwork for an IPO in the United States.
Buyout group Permira is preparing to list Golden Goose, known for its luxury distressed sneakers, in Milan in a deal that could raise about 1 billion euros ($1.09 billion), sources have said.
Dealmakers expect buyout funds to be a vital source of business in the coming months, as these come under pressure to return capital to investors after one of the slowest years for private equity exits in a decade.
"The pre-conditions are in place for IPO markets to re-open, and private equity owns large assets which are attractive to public market investors," said Gareth McCartney, global co-head of ECM at UBS.
Some asset managers are looking at going public like their portfolio companies, in a bid to finance expansion and allow their owners to sell their stakes.
Britain's CVC (CVC.UL) could revive its listing plans after postponing a mooted IPO earlier this quarter, while General Atlantic is reportedly planning a U.S. listing.
"Corporate break-ups and spin-offs are also an option for next year," said Andreas Bernstorff, head of ECM at BNP Paribas for Europe, the Middle East and Africa (EMEA).
Expected to join are European conglomerates including Bayer (BAYGn.DE), Renault (RENA.PA), Sanofi (SASY.PA) and Vivendi (VIV.PA), which have announced plans to explore potential break-ups and spin-offs of their business divisions.
Bankers warned that the market will need to see a few successful IPOs in the new year before it can open up to a wider group of companies. The U.S. presidential election may also limit the amount of time companies have access to the equity capital markets in the second half of 2024.
While the IPO market recovers, dealmakers hope to continue raking in fees from arranging stake sales and capital increases at companies that are already publicly traded.
"Secondary sell-downs have been a defining feature this year and will continue to be so next year, although to a lesser degree given the high volume in 2023," said James Palmer, head of EMEA ECM at Bank of America.
The last few months have seen shareholders sell multibillion-dollar stakes in companies such as Heineken (HEIN.AS) and the London Stock Exchange Group (LSEG.L).
Governments have also started to offload holdings in banks rescued during past crises, including Monte dei Paschi (BMPS.MI) and ABN Amro (ABNd.AS).
Company boards may also turn to equity and convertible debt as an alternative to refinance upcoming debt maturities, given higher borrowing costs.
"I think 2024 has the potential to be very different," Aloke Gupte, co-head of international ECM at JPMorgan.
"While volatility is likely to persist, are there reasons to believe ’24 may be better than ’23? Yes, very much so."
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