The Initial Public Offering (IPO) market has shown signs of recovery in 2023 and early 2024, rebounding from a particularly challenging period. In 2023, the U.S. market saw 108 offerings raising $19.4 billion, according to Renaissance Capital. While still subdued, this marked a significant improvement from 2022’s 30-year low of just 71 IPOs raising $7.7 billion.
Global IPO activity in the first half of 2024 presented a mixed picture. According to EY’s Global IPO Trends Q2 2024 report, there were 551 listings raising $52.2 billion in capital worldwide. This represents a 12% decrease in the number of IPOs and a 16% drop in proceeds compared to the same period in 2023. However, this overall decline masks regional variations, with the Americas and EMEIA (Europe, Middle East, India, and Africa) experiencing robust growth, while Asia-Pacific saw a slowdown.
Sector-wise, industrials led in the number of IPOs with 115 listings (21% of the total), driven largely by strong activity in India. The technology sector, however, dominated in terms of capital raised, securing $10.8 billion (21% of total proceeds), with the United States capturing a significant portion of these funds.
A notable trend in 2024 has been the resurgence of private equity (PE) and venture capital (VC) backed IPOs. These offerings accounted for 41% of IPO proceeds in the first half of 2024, a dramatic increase from just 9% in the same period of 2023. This trend was particularly pronounced in the Americas, where PE/VC-backed companies contributed 74% of IPO proceeds.
The past two years have seen a shift in investor focus towards financial sustainability and profitability of newly listed companies. This change reflects a more discerning approach in an environment characterized by tight monetary conditions and market uncertainties. In response, companies eyeing public listings are increasingly emphasizing their revenue and profitability metrics, as well as plans for achieving sustainable growth. This trend is evident in the improved net profit margin metrics of the 2023 and YTD 2024 IPO cohorts across most regions.
The U.S. market has demonstrated particular resilience, showcasing a diverse range of companies making their market debuts. From emerging technology and health ventures to mature, scalable firms, this variety has driven a significant increase in average deal values and median net profit margins.
Looking ahead, there’s growing optimism surrounding unicorn IPOs – privately held companies valued at over $1 billion. Technology unicorns represent approximately half of the total IPO candidates, followed by those in the financial, industrial, and consumer sectors. Artificial Intelligence (AI) unicorns have garnered significant attention, with substantial funding rounds reflecting rising investor interest in the field. The robust growth and funding in the AI vertical underscore its crucial position in the current unicorn landscape, with several companies well-positioned for potential IPOs in the near future.
However, the IPO market faces potential headwinds from global political events. With elections scheduled in countries representing over 50% of the global population and nearly 60% of worldwide GDP, including many geopolitically significant regions, uncertainty looms large. While U.S. presidential elections historically have had minimal impact on IPO activity during election years (except for a slight lull in November), the years following elections often see a noticeable uptick in IPO activity. This suggests that policy changes, economic initiatives, and stabilized market sentiment post-election can contribute to a more favorable environment for public offerings.
As we move through 2024 and beyond, the IPO market’s trajectory will likely be shaped by a complex interplay of factors including monetary policy shifts, geopolitical developments, and evolving investor preferences. Companies considering public offerings will need to navigate these challenges while demonstrating strong fundamentals and growth potential to attract increasingly discerning investors.