By Pablo Mayo Cerqueiro
LONDON (Reuters) – Bankers who advise companies on initial public offerings are confident the new year will bring a rebound in initial public offerings after the U.S. Federal Reserve signaled it could begin the fastest rise in interest rates in decades to reverse.
“The IPO markets will be much better in 2024 than they were this year, and my gut feeling is that both volumes and access opportunities will continue to evolve throughout the year,” said Daniel Ludwig, global head of equity capital markets (ECM). ) at Goldman Sachs.
This positive call comes after a difficult year for bankers. According to Dealogic, this year is expected to be the second worst for ECM transactions in the last decade after 2022, with $532 billion raised so far.
IPOs in particular saw the lowest activity in 2023 since 2016.
Some of those that went public this year saw their share prices fall in the aftermarket, including chip maker Arm Holdings and sandal maker Birkenstock.
Many of these stocks are now trading above their issue price amid a global stock rally fueled by growing consensus that interest rates have peaked.
“There is a clear understanding that at worst we are in a pause in the rise in interest rates and at best at the beginning of a possible fall in interest rates,” said Stephane Boujnah, CEO of European stock exchange group Euronext. This would prompt investors to shift assets from bonds to stocks, he said.
Goldman Sachs' Ludwig's positive forecast for 2024 is still a long way from the boom times of 2021. However, Singapore-based fashion group Shein could go public next year at a valuation of up to $90 billion after recently filing documents for a U.S. IPO.
According to sources, buyout group Permira is preparing to list Golden Goose, known for its luxury distressed sneakers, in Milan. The deal could bring in around one billion euros ($1.09 billion).
The story goes on
Dealmakers expect buyout funds to be a key source of business in the coming months as they come under pressure to return capital to investors after one of the weakest years for private equity exits in a decade.
“The stage is set for IPO markets to reopen and private equity owns large assets that are attractive to public market investors,” said Gareth McCartney, global co-head of ECM at UBS.
Some asset managers are considering going public like their portfolio companies to finance expansion and allow their owners to sell their shares.
Britain's CVC could revive its listing plans after postponing a planned initial public offering earlier this quarter, while General Atlantic is reportedly planning a US listing.
“Split-offs and spin-offs are also an option for next year,” said Andreas Bernstorff, head of ECM at BNP Paribas for Europe, the Middle East and Africa (EMEA).
It is expected to be joined by European groups such as Bayer, Renault, Sanofi and Vivendi, which have announced plans to explore possible demergers and spin-offs of their businesses.
Bankers warned that the market would need to see a few successful IPOs in the new year before it could open up to a larger group of companies. The US presidential election could also mean that companies have less time to access capital markets in the second half of 2024.
As the IPO market recovers, dealmakers hope to continue raking in fees from arranging share sales and capital raises in already-listed companies.
“Secondary sales have been a defining feature this year and will continue to be so next year, albeit to a lesser extent given the high volume in 2023,” said James Palmer, head of EMEA ECM at Bank of America.
In recent months, shareholders have sold billion-dollar shares in companies such as Heineken and the London Stock Exchange Group.
Governments have also started shedding stakes in banks bailed out in previous crises, including Monte dei Paschi and ABN Amro.
Given the higher borrowing costs, company boards could also turn to equity and convertible bonds as an alternative to refinancing upcoming debts.
“I think 2024 has the potential to be very different,” said Aloke Gupte, co-head of international ECM at JPMorgan.
“Although volatility is likely to continue, are there reasons to believe 24 could be better than 23? Yes, very much so.”
($1 = 0.9142 euros)
(Reporting by Pablo Mayo Cerqueiro in London; Editing by Anousha Sakoui and Louise Heavens)
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