A $5.5 Billion Wave of IPOs Marks a Turning Point

The summer of 2024 is heating up, not just with rising temperatures but also with a surge in initial public offerings (IPOs). After a prolonged slump in new listings, the IPO market is showing signs of revival with an anticipated $5.5 billion in deals. This resurgence is seen as a beacon of hope for investors and a potential catalyst for market momentum.

Key Takeaways:

  • The IPO market is expected to see around $5.5 billion in deals, marking a significant boost.
  • Lineage Inc.'s $4 billion deal headlines the busiest week for IPOs since September.
  • The IPO market's revival could set the tone for the fall, especially in an election year.
  • Reduced public valuations and cautious investor sentiment are shaping the current IPO landscape.
  • A strong showing in July could bolster the 2024 IPO numbers by about 25%.

The Revival of the IPO Market

The IPO market, which had been in a slump, is finally showing signs of life. According to Bloomberg, the U.S. initial public offerings are expected to receive a significant boost this week with as much as $5.5 billion in first-time equity issuance. This could be the opening investors have been eagerly waiting for during the recent new listings drought.

Paul Abrahimzadeh, Citigroup Inc.'s co-head of equity capital markets for North America, noted, "The IPO market started to open and volumes are up, but it just didn’t have the sustained momentum we would’ve liked."

Key Players and Deals

The up to $4 billion deal for Lineage Inc., a temperature-controlled storage and logistics real estate investment trust, is the highlight of what could be the most crowded slate for new issues since September. This deal, along with others, is expected to set the stage for a busy fall, especially in an election year.

Lineage's offering is slated to price after Wednesday’s close, the same day Select Medical Holdings Corp.’s occupational health services unit Concentra Group Holdings Parent Inc. will raise money in a carve-out. They will come a day after KKR & Co.’s OneStream Inc. and existing shareholders aim to raise around $466 million.

Investor Sentiment and Market Dynamics

The current market dynamics are markedly different from the past. Jeremy Abelson, founder and portfolio manager at Irving Investors, highlighted a paradigm shift for investors and private companies. "Gone are the days of assessing a short-term pop before shares settle into a normalized level," Abelson said. "We regularly speak with our portfolio companies about expecting the opposite of a premium and more of a coming to terms with a likely modest or discounted valuation until they become a proven public market asset with multiple successful quarters of reporting."

This shift has led some companies, including cloud-based finance platform OneStream, to tone down their ambitions. The company is seeking a market value of $4.4 billion at the top of its IPO price range, down from $6 billion in a 2021 funding round.

The Broader Impact

The IPO market's revival is not just about individual deals but also about setting the tone for the broader market. A strong showing this week could bolster the 2024 numbers by about 25%, according to Daniel Polsky, William Blair & Co.’s syndicate co-head. "People will be watching this crop of July IPOs for how they price and trade as a proxy for current investor sentiment," Polsky said.

Moreover, the rotation by investors from megacap tech stocks to smaller companies has made Wall Street keen to see the catch-up trade extend through a typically quiet August. This could coax companies off the sidelines and into the public market.

Challenges and Opportunities

Despite the positive signs, the IPO market still faces challenges. Reduced public valuations and a skittish calendar have made predicting deal activity more difficult. Many companies may push listings into next year, particularly those that can tap private investors or have healthy balance sheets.

"If the boards don’t love the absolute multiples of their peers, the decision is to just wait," Citi’s Abrahimzadeh said. "That’s deferred a lot of this year’s IPO activity into 2025."

However, not all news is dire. U.S. IPOs have brought in $22 billion this year in a still quiet market, up more than 60% from last year. But it’s also just a tenth of 2021’s banner haul, data compiled by Bloomberg show.

A New Cycle of Confidence

The mood on Wall Street is improving, and stocks have been on a tear. There's less volatility and less worrying about a recession. David Bauer, the global head of equity capital markets at KKR, believes we are at the start of a new cycle. "I think we're at the start of what is a new cycle, and one that will, I think, extend through 2024," Bauer said.

This renewed confidence is reflected in the actions of companies like Birkenstock and Instacart, which are preparing for their IPOs. Rachel Gerring, a partner at the consulting firm EY, noted that companies are being more realistic and no longer chasing sky-high valuations. "We're still kind of going through a valuation reset," Gerring said.

Conclusion: The Road Ahead

The resurgence of the IPO market is a promising sign for investors and the broader economy. While challenges remain, the anticipated $5.5 billion in deals this summer could set the stage for a strong finish to 2024. As companies and investors navigate this new landscape, the lessons learned from the past year will be crucial in shaping future strategies.

Stay tuned to WealthJevity for more exclusive financial research and proactive investing insights. The summer heat is just the beginning—there's much more to come in the world of IPOs and beyond.