Previn Waas, U.S. IPO co-leader at Deloitte, told Fortune that the volume and success of the deals so far is a great sign for the rest of 2024. “I’m way more optimistic than I’ve been in the last two years,” he added. “The phones are ringing, we’re talking to a lot more companies. In ’22 and ’23, the phones barely rang.”
Karen Snow, the global head of listings at Nasdaq, said via email that there’s been especially strong interest in the biotech and technology sectors. She added that the Nasdaq is aware of about 160 active S-1 and F-1 filings—the documents submitted by either domestic or foreign companies to the Securities and Exchange Commission as the first step in registering to go public.
The Nasdaq lists Astera Labs, which raised $713 million with its IPO last month and whose shares jumped 72% on the first day of trading. Following that was Reddit’s offering, which helped the tech sector maintain its momentum, and just a few weeks later Ibotta said it would be chasing a $2.3 billion valuation with its own IPO.
“[Astera’s] is a solid sign for tech IPOs in general, but definitely for the semiconductor industry, and I would say especially for companies that are looking to pitch AI,” Avery Marquez, an assistant portfolio manager at Renaissance Capital, told Fortune. “Reddit, on the other hand, is more emblematic of the IPO pipeline right now.”
Follow the money
Jay Ritter, a finance professor at the University of Florida’s Warrington College of Business, noted that when looking at the larger IPOs—some smaller deals were completed over the last two years, Marquez noted—there were four times as many listings in just the first quarter of 2024 as there were in all of 2022 and 2023. And data from Ernst and Young shows a 230% increase in total funds raised by IPOs when compared with the first quarter of 2023.
But has a rising tide lifted all boats? Not exactly. Among the 30 IPOs, 15 raised at least $100 million—two crossed the $1 billion mark—but only about one-third finished the quarter with shares above initial prices. Deals in other sectors such as health care, industry, and consumer discretionary returned -1%, -34%, and -28%, respectively.
And when looking just at tech, Astera and Reddit raised about 98% of the $1.5 billion seen in that sector. That’s fairly consistent with the broader markets, Ritter said, with gains in the S&P 500 being bolstered by the so-called “Magnificent Seven”—Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA, and Tesla.
‘High multiples without indicators that justified it’
While there’s been a lot of focus on 2021 being a record year for IPOs, it was also a strong year for private equity. According to Renaissance Capital data, 2021 had 399 IPOs that raised $142.5 billion. When adding in SPAC deals, those figures, according to Nasdaq data, exceeded 1,000 IPOs and $286 billion.
Private companies alone raised $329.5 billion. Reddit was valued at $10 billion after raising $400 million in a Series F, and that didn’t even crack the top 15 funding rounds of the year. The market was due for a correction, and IPOs falling off a cliff in 2022 was the result of an overheating marketplace combined with a few other factors, experts said.
“In 2020 and 2021, private markets and public markets got excessively exuberant about young growth companies,” said Ritter, adding that many investors weren’t really distinguishing between companies with solid business plans and others facing more difficult paths to profitability. “The markets were giving high multiples without indicators that justified it.”
Because drops in valuations followed successful funding rounds, Waas explained, many companies had enough cash on hand to simply wait it out. Instead of raising more money, some focused on streamlining operations.
That said, even as markets improve, the overall IPO interest from investors may not quite reach the hights of 2021, experts told Fortune. Some investors, Ritter noted, may simply be more discerning this time around and less willing to bet on growth companies. Waas also said more firms may keep waiting to increase revenue before considering an IPO.
“I’d say 10 years ago, if you got to $100 million dollars in revenue, you’d say you were ready to go public,” Waas added. “Now those numbers are closer to three, four, $500 million in revenue.”
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