Good Things Come to Those Who Wait

It is all quiet on the Western front now. Too quiet out there in the IPO land. A couple of attributes have brought forth these stealth-mode sentiments in the market. Stocks had a dismal performance in October, and the anticipation of prolonged higher interest rates, coupled with lackluster after-market showings from recent summer initial public offerings, has led many potential IPO candidates to reconsider or postpone their debuts, possibly due to the looming prospect of significantly reduced valuations.

Companies are Delaying IPOs

There are a couple of IPO candidate companies, scheduled for IPO launching in Q4 2023, but were reportedly delaying their IPO possibly into 2024. A few years back, big IPOs usually went public in November and December but the year-end IPO gold rush ceased in 2022 and it is expected to continue ceasing again this year.

This year has seen three of the biggest IPOs i.e. Instacart, Birkenstock and Kenvue are trading below their offering prices while Arm is trading near its debut price. The performances from these IPOs, dubbed as the largest IPOs in 2023, has set an undesired momentum forward for the IPO market and it is not surprising other IPO candidates are postponing their IPOs to a later date.

To date, a total of 96 IPOs had gone public this year and raised about USD18.8 billion compared to a measly USD7.7 billion raised in 2022. According to Renaissance Capital, a normal year should see about USD50 billion raised in IPOs.

IPO Re-opening in 2024

The IPOs from Arm and Instacart are speculated to bring the return of IPOs but that has not been materialized yet. A rebound could be coming soon and Goldman Sachs is more optimistic about the real opening of the PO market in 2024 than in 2023. According to Goldman’s 2024 Outlook, the Federal Reserve will cut rates in 2024 and that usually, is an opportune time for the IPO market to re-emerge and come back strong.

Companies would want to go public when there is an expectation that the market is going on an upward trend and would trade up. When expectation is moving such that people are anticipating rate to decline and are starting to see rates coming down, that is when IPOs usually open up. Here’s the Federal’s own projections showing cuts are likely starting in 2024:

Looking at the projection forecast, the outlook for 2024 should looks brighter with the cutting on rates, bringing a resurgence of IPOs to the market. As reported by Goldman Sachs, the real reopening of the IPO market is set to take place next year, 2024.

Getting Ready for the Next Wave

Besides ARM, Birkenstock, Instacart and Kenvue, many large and well-known companies still remain in the private market to date, including TikTok’s parent company ByteDance, Elon Musk’s SpaceX, and financial services giant Stripe. Other IPO candidates that are scheduled to go public appear to be delaying IPOs yet again, namely, Waystar, Panera Bread, Klarna, Stripe and SHEIN. These candidates are all holding off their IPOs until later date.

Nevertheless, looking ahead to 2024, there is a more optimistic outlook fuelled by the anticipation of the Federal Reserve implementing rate cuts. This positive shift in the economic landscape suggests that the previously hesitant IPO candidates may soon re-enter the market. As the expectation grows that major corporations will eventually proceed with their initial public offerings, investors are advised to strategically position themselves. This entails seizing the opportunity to gain exposure to pre-IPO companies, positioning for the anticipated surge in liquidity events poised to unfold in the near future.