Contents
Deal Watch: Will IPOs Take Off This Year?
Last year was a record for IPOs. But so far in 2022, the new listings have raised only $2 billion.
Many private equity and venture capital firms are reluctant to go public, especially given recent stock market volatility. Still, some lawyers’ capital markets experts see signs that IPO activity could soon rebound.
What is the IPO guide?
Private owners and investors in young companies often see an IPO as a path to wealth. And it can be, provided that they understand all the pros and cons of going public and have carefully considered all the inherent risks.
But a big bump, a detour, or a dead end in that hoped-for stock market cash flow can happen when the IPO process isn’t managed properly. This is why it is critical for corporate counsel to have strong relationships with top-tier law firms and for these firms to have deep expertise in the IPO process.
That’s why four attorneys who’ve been involved in some of the biggest tech IPOs in recent years join us this week to discuss how they prepare their clients for an IPO, how their IPOs went, and s They expect that 2023 will be a better year for IPOs. . Watch the video above to learn more. And don’t forget to subscribe to The American Lawyer podcast on iTunes.
The Fed is not raising interest rates
After a wild boom in 2021, capital markets have been quiet for most of this year. Initial public offerings are down 95% year-over-year and have yet to reach their previous highs of last year. Only 18 companies have gone public so far this year, raising just $9 billion, according to Dealogic. Last week, only four IPOs were announced without a value of more than $2 billion.
A major factor is the increase in interest rates, which makes borrowing more expensive and reduces the demand for new shares. But a slow recovery could mean fewer opportunities for companies like mortgage lenders and credit card processors that earn significant fees from issuing and processing loans. It could also curb the growth of technology companies that use specialized software and systems to process payments or store consumer data. It could also stifle mergers and acquisitions, which rely on robust economic growth. A sustained rebound in IPOs can take years. But a few stars need to align for the market to take off.
Secondary supply is growing
Patrick leads multidisciplinary teams in the planning and execution of corporate finance transactions, including tender offers, exchange offers, restructurings, recapitalizations, mergers, share purchases, divestments, LBOs, MBOs, debt issuances (including PIPEs), bonds high-yield, convertible bonds, equity. and hybrid securities at each level of the capital structure. He also handled a number of private transactions.
A company that wants to go public needs access to the capital markets to finance growth, and the IPO provides that. Investor demand is also important.
That’s why secondary offerings are outpacing IPOs this year, with nine companies backed by US PE and VC so far. One of those is Robinhood, the disruptive online brokerage that has been credited with bringing millennial investors to the market — and helping fuel meme stock rallies at GameStop and AMC Entertainment. Other follow-up offers come from private equity backers looking to sell stakes in their portfolio companies. That could accelerate if the market continues to do well.
The IPO Pipeline is complete
Many private companies paused on plans to go public last year, anticipating that the market would recover and that it would be better to wait for a more bullish environment. They may need to raise capital soon, however.
A revival of the IPO market needs a number of things to converge, according to experts. Among other things, the economy should stabilize, there is a need for more clarity on the direction of interest rates, and buyers and sellers should come closer on prices.
Until then, the tumbleweeds continue to blow through the NYSE. But there are signs that the IPO window is not completely closed, with nine US PE and VC-backed IPOs priced this year, up from five in Q4 2022. It’s a small increase, but it’s a beginning. And that may be enough to bring the market back to life.