The stock market’s buoyant reaction to Donald Trump’s return has largely brushed aside the prospect of his long-promised tariffs, creating an air of cautious optimism.
However, this optimism is tempered by a nagging concern within the IPO sector, which has spent months gearing up for what was expected to be a banner year in 2025.
IPO bankers are now hoping that the incoming administration’s policies won’t throw a wrench into the gears of a market poised for a comeback.
A delicate balancing act
After a year that saw a 60% jump in IPO volume compared to 2023, the US IPO market is still recovering from the shock of rising interest rates.
These rate hikes effectively slammed the door on the pandemic-era stimulus and triggered a market correction.
The return to normalcy is hotly anticipated for 2025, but as Clay Hale, co-head of equity capital markets at Wells Fargo & Co., points out to Bloomberg in a report, “The biggest risk is it creates unneeded volatility in the market as a whole. When there’s volatility in the market and investors are focused on their portfolio, they’re less likely to want to engage in adding a company from the private markets.”
The IPO pipeline is ready
Taking a company public requires careful planning, akin to steering an aircraft carrier. It takes time to organize documents, engage investors, and refine the balance sheet.
However, the relative market stability of the past year has allowed dealmakers to prepare for potential blockbuster listings, including CoreWeave, Medline Industries Inc., and Genesys Cloud Services Inc., which could collectively raise billions.
Data compiled by Bloomberg indicates that a flurry of large deals could push past the $43 billion raised in the US through first time share sales this year.
Still, even with the markets hovering near record highs amid expectations of a strong economy, Kevin Foley, JPMorgan Chase & Co.’s global head of capital markets, told Bloomberg, “some uncertainty still lingers. There’s optimism that the new administration will bring deregulation and reduce inflation, but tariffs are inherently inflationary.”
The private equity predicament
The return of sharply rising prices due to the tariffs could force the Federal Reserve to reevaluate its interest rate strategy.
This would exacerbate the challenges faced by private equity firms, which are currently sitting on a logjam of companies slated for either public offerings or sales, valued at nearly $3 trillion as of October, not to mention rising debt service costs.
According to Arnaud Blanchard, global co-head of equity capital markets at Morgan Stanley, “A lot of the activity will come from the private equity community. But this isn’t a 2020 market, and it will still favor high-quality assets, where the amounts raised and implied market caps are not sub scale.”
Data compiled by Bloomberg further suggests that if the biggest expected deals come to fruition, deal volume in 2025 may more than double that of the post-pandemic drought.
However, it’s not a free pass for companies with balance sheet issues.
Jimmy Williams, Jefferies Financial Group Inc.’s head of West Coast technology ECM, told Bloomberg: “Some PE-backed deals will be for premium assets that are growing with scale and others will need to address leverage and find a valuation that can get buyers excited. For the latter, there’s a tension between what investors are willing to pay and what sponsors may be willing to accept for companies they’ve held for some time.”
Tech’s tentative return: a sign of recovery?
The absence of tech debuts since 2021 has been a significant indicator of the US IPO market’s state.
Although tech firms typically account for the bulk of deal flow, they made up less than one-fifth of the proceeds on US exchanges this year.
That’s finally showing signs of change.
Recent success stories, like Reddit Inc. and Astera Labs Inc., as well as the impressive debut of ServiceTitan Inc., whose share price jumped 42% on the first day, have sparked renewed confidence.
Paul Abrahimzadeh, Citigroup Inc.’s co-head of ECM for North America, notes that companies initially considering 2026 IPOs are now targeting the second half of 2025.
“You can feel people gearing up within the venture community. Talking to VCs on the boards of private companies, nobody wants to wait; they need to show LPs that they’re returning capital and crystallizing returns,” he told Bloomberg.
The fact that backers are demonstrating flexibility on valuations, including accepting “down rounds” for IPOs is also a welcome sign, according to Keith Canton, JPMorgan’s head of Americas ECM.
Active IPO market expected in 2025
Daniel Burton-Morgan, head of Americas ECM syndicate at Bank of America Corp., states that “We are going into 2025 with the expectation that we will see a very active US IPO market — big sponsor monetizations, more consumer and tech assets and a fintech pipeline that we have not seen as developed, for several years.”
Several companies are leading the charge, with Swedish digital payments firm Klarna Group Plc filing confidentially in November for a US listing and fintech Chime Financial Inc. also heading for a 2025 debut.
Potential regulatory changes around crypto assets have also revived interest in possible debuts in this sector, including Circle Internet Financial Ltd. and trading platform eToro.
While tech has been quiet, Eddie Molloy, Morgan Stanley’s global co-head of ECM, believes that the diverse sectors contributing to the IPO market this year will continue in 2025.
Balancing optimism and reality
The market is pricing in potential rate cuts, and Trump has indicated that he has no plans to replace Fed Chair Jay Powell, which has led many to predict a banner year for IPOs.
Elizabeth Reed, global head of equity syndicate at Goldman Sachs Group Inc., echoes this sentiment, stating “Greater macro stability, the election behind us, and an environment seemingly ripe for more capital markets growth.”
However, Jill Ford, Wells Fargo’s co-head of ECM, points out that a strong currency and an easing regulatory environment could cause companies to opt for M&A routes, as “The IPO market is getting healthy and returning but it’s not gangbusters just yet so you have to consider every process a dual track because it’s a very real possibility they’d go the M&A route.”
Ultimately, as Tom Swerling, global head of ECM at Barclays Plc, notes “the market is choosing to look favorably to the likely upsides of a Trump presidency”, but the extent to which the campaign rhetoric will translate into action remains to be seen.
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