IPOs rise on prospect of Fed interest rate cuts: EY

Dive Brief:

U.S. initial public offerings raised $22.2 billion this year, far below the 2021 level but 157% greater than during a deep market slump last year, EY said in a report.
Rising confidence that the U.S. will avoid recession and signals by the Federal Reserve of interest rate cuts in 2024 have revived interest in IPOs, EY said. Mark Schwartz, EY’s Americas IPO and SPAC advisory leader, noted a growing IPO pipeline and a “tick up in IPO readiness dialogue and activity with our clients.”
Strong consumer spending, solid earnings performance at U.S. companies, pent-up demand for public listings and either stable or declining commodity prices may fuel the U.S. IPO market next year, Schwartz said in an email reply to questions.

Dive Insight:

High-profile IPOs in recent months — including by Arm Holdings and Instacart in September — renewed C-suite and investor interest in the market, EY said.

The total number of IPOs in 2023 will probably reach 132, or 47% more than last year, EY said, based on offerings through Dec. 4 and those expected by the end of December.

“The back half of 2023 reminded companies that investors are open to sizable IPOs as a few marquee deals entered the markets,” Schwartz said.

“Next year could be a transition year — if some of the recent IPOs continue to gain momentum and the cost of capital begins to decline, we could see an expansion of the types and sizes of companies entering the public markets,” he said.

To be sure, flagging consumer spending, fears of recession, expanded geopolitical turbulence, and a resurgence of inflation that prolongs monetary tightening could pose headwinds to U.S. offerings, Schwartz said.

Big-name IPOs were not the norm during 2023. Nearly 70% of U.S. IPOs raised less than $25 million this year compared with an average of roughly 10% during the previous decade, EY said.

Still, during the past 12 months the outlook for the IPO has significantly brightened in the U.S. and worldwide, EY said.

“Globally, moderating inflation and potential 2024 interest rate cuts could attract investors back to IPOs by improving liquidity and return outlooks,” according to the EY report.

The market in special purpose acquisition companies (SPACs) sagged further in 2023. Twenty-nine SPAC IPOs raised $3.7 billion this year compared with 86 SPACs that raised $13.4 billion in 2022, EY said. More than 140 SPACs are seeking a merger partner.