US set for IPO comeback as private equity firms seek to offload holdings

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Wall Street bankers are preparing to revive initial public offerings as private equity groups look to take advantage of buoyant U.S. equity markets to offload their flagship holdings.

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

Bankers and analysts expect a surge in listing announcements in the first half of 2025, following a blockbuster rally in U.S. stocks in 2024 and hopes that President-elect Donald Trump will cut regulations and taxes.

Investors and bankers were also encouraged by the strong rise in share prices after the latest deals. Nine of the 10 largest IPOs of 2024 ended the year above their listing price, with half of them posting triple-digit gains, led by social media group Reddit.

“Continued improvement and more activity, that’s the headline,” said Eddie Molloy, Morgan Stanley’s global co-head of equity capital markets [economic] a background that is a little more certain, more pro-business on regulatory policy and the Fed [cutting interest rates]we definitely need to be busier.”

The expected rush of U.S. IPOs comes after a three-year drought as the Federal Reserve’s campaign to sharply raise interest rates starting in 2022 curbed investor demand for new listings.

Higher interest rates reduce demand for assets that are considered high risk or that are valued based on the promise of future growth, both common characteristics of newly listed companies will cut interest rates over the next 12 months, but still expect interest rates to fall further after the central bank announced three consecutive rate cuts through 2024 last

US listings will raise $32 billion in 2024, excluding special-purpose acquisitions, according to Dealogic, up nearly 60 percent from 2023.

Few observers foresee a return to the deal-making frenzy of the pandemic era, when massive government and central bank stimulus programs boosted markets and led to a surge in IPOs that reached $150 billion in 2021.

However, bankers expect capital market activity to exceed an average of $38 billion by 2020.

“Big [private-equity backed] IPOs will be the most important topic,” Molloy said.

The trend is driven in part by private equity firms struggling to return funds after a long deal drought. It also reflects a shift in investor appetite after many were burned by bad bets on loss-making startups during the pandemic-era IPO rush. :

“These are companies that are generally larger and more profitable, and therefore will be more palatable to public market investors,” said Jeremy Abelson, founder and portfolio manager of Irving Investors, a growth-focused fund that invests in private and public companies. “The difference between today and 2021 is that in 2021 there was considerable enthusiasm for mediocre businesses. We won’t see that much anymore for a long time.”

Fintech will also be a topic to watch closely in the first half of 2025, with Swedish buy-now-pay-later group Klarna expected to be one of the first major venture firms to venture into the market.

San Francisco-based mobile banking group Chime has also updated its plans to go public after initially aiming to list more than two years ago.Chime previously discussed a $15 billion to $20 billion valuation with investors, similar to Klarna , though tech and financial stocks have made big gains since last month’s U.S. election, which could help boost its ultimate valuation, according to two people familiar with the talks. Chim declined to comment.

Some observers have been surprised by the relative quiet in the IPO markets, given the broader strength in U.S. stocks over the past two years, with the S&P 500 up nearly 70 percent from its 2022 lows with many large companies rather than small groups that typically float their shares.

Ryan Nolan, head of software investment banking at Goldman Sachs, said the expansion in stock market growth in the second half of 2024 has fueled confidence. “There’s a lot more excitement and momentum,” he said.

Many private companies secured huge financings in 2021 at inflated valuations, which reduced the urgency for further deals and made executives reluctant to take on new cash at a lower valuation.

Samantha Lau, chief investment officer for small- and mid-cap growth stocks at AllianceBernstein, said private investors are now “more realistic” about valuations.

“It’s been enough time since 2021 that things should start to melt down,” he added.