US ECM looks ahead to 2024

IFR 2511 - 25 Nov 2023 - 01 Dec 2023
2 min read

Bankers expect the final window of 2023 to bring very few US IPOs despite a spirited November rebound in the US stock market, with most aspiring debutants having already turned their attention to next year.

On a brighter note, equity issuers are expected to remain opportunistic in secondary ECM via follow-on stock sales in December.

Through early Friday, the S&P 500 was showing an 8.7% gain in November and up 18.7% this year, while the VIX fear gauge was just 13. This comes amid greater confidence the US Federal Reserve has ended its rate-hike cycle.

Even so, the final weeks of the year are a difficult time to raise funds as portfolio managers avoid taking undue risks near the end of their annual performance period.

Further increasing the degree of difficulty, most investors have underperformed their benchmarks, and by a good margin if they were not significantly exposed to the "Magnificent 7" tech stocks of Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla. Nvidia and Meta in particular are up 228% and 181%, respectively, this year.

Though IPOs sometimes offer one means of quickly closing the gap, recent deal performance has mostly disappointed, shattering confidence in new issue product.

Nevertheless, companies such as UL Solutions, Carmot Therapeutics, Turo and China's Zeekr Intelligent Technology have recently filed or updated filings to position themselves for a December debut if they are brave enough to move ahead.

Through Thursday, 33 companies raising at least US$50m have gone public on US exchanges this year for proceeds of US$18.6bn, up strongly from just US$8.1bn in a dismal 2022 but a shadow of 2021's record US IPO volume of more than US$150bn.

Even more disappointing for investors, the average gain from this year's IPOs stands at less than 1% and two-thirds of offerings are trading below issue.

Bankers expect 2024 to show a meaningful improvement in IPO activity, including some trophy debuts from unicorns that have delayed listing plans.

Much depends on the timing and extent of any interest rate cuts and the second half could see increased volatility around the US presidential election.

The past week brought no IPOs and just one follow-on of note as activity wound down ahead of the Thursday's Thanksgiving holiday. E&P Ovintiv priced a US$417m secondary sponsor block.

Follow-on activity continues to be driven largely by private equity firms' eagerness to book some gains to help recycle capital in their funds.