18 Sep, 2023

A normal IPO market still 'a ways away'

While optimism is building in the IPO market, a full-blown recovery is unlikely to happen overnight.

IPO activity has remained subdued in 2023 after plummeting in 2022. However, some momentum has been picking up for equity issuance. The execution of the $4.87 billion Arm Holdings PLC IPO — the third-largest such transaction for a US-listed technology, media and telecommunications company — has added to the enthusiasm for the nascent recovery of the transactions.

Still, investment bankers doubt a flood of companies will suddenly go public.

Seth Rubin, head of US equity capital markets at Stifel Financial Corp., expects "a handful" of IPOs to price in each of the fourth quarter of 2023 and the first quarter of 2024. If those go well and markets are not derailed by the 2024 US election cycle or recessionary concerns, Rubin believes that will pave the way for greater activity.

"I'm hopeful that we'll have a really active IPO market [in second quarter, third quarter] next year," Rubin said during the latest episode of The Pipeline podcast.

On the latest edition of The Pipeline podcast, Seth Rubin, Stifel's head of US equity capital markets, spoke about the strategies some companies are taking to execute an IPO, the outlook for the market as a whole and the future of SPAC issuance. Download the episode, and explore The Pipeline page on Spotify.

Once the IPO window fully opens, there should be no shortage of companies looking to pass through. Rubin added that the lack of IPO activity in recent quarters has created a supply of high-quality companies that are fit to go public.

"There's a great group of companies that are waiting for the right time to time the market," Rubin said. "And they're well-funded so they don't have to come out before they're ready."

Even those sorts of companies can be hesitant to pursue an IPO in the current market because economic uncertainty can make forecasting business activity more challenging and stock market performance more choppy. Once more of them start to go public, the deals can beget more deals, Goldman Sachs Group Inc. Chairman and CEO David Solomon said.

"It kind of creates a virtuous cycle of bringing more of the pent-up backlog to market," Solomon said Sept. 12 during an investor conference.

Solomon noted that he has seen an improvement in the market, and his company has some significant IPOs in the market. "It's been quite a while since I could say to you we have a handful of very significant IPOs in the market," Solomon said.

The executive noted that it can take a few quarters before it is business as usual.

"Things are improving, but we're still a ways away from normalized levels with respect to capital markets," Solomon said.