26 January 2024

Are IPOs in danger of extinction?

2023 will go down in history as a dry year in the IPO landscape. However, 2024 promises intense stock market activity. Therefore, at BBVA CIB, we offer a brief analysis of the optimistic outlook for the IPO market in 2024, told by our expert José Manuel Gómez-Borrero, Head of Equity Capital Markets for Europe.

In the last month, there have been over 7.3M public mentions related to IPOs in 2024. In our latest LinkedIn Trending Data newsletter, we have cross-referenced this data with the more than 3.2M mentions linked to #Stocks and than 900K to #IPO, #StockMarket, #Quotation and #Stocks, to bring you a brief analysis about the optimistic outlook for the IPO market in 2024, against a backdrop of lower inflation and expectations of possible interest rate cuts.

For the past two years, IPOs have been going through a global desert. Specifically, in 2023, the global IPO market has experienced moderate and limited activity levels. If we compare the data with 2021, the year in which Europe experienced the best period of IPOs since the financial crisis, we can see that there has been a notable drop in this type of transaction. According to the 'EY Report: Global IPO Trends' for the fourth quarter of 2023, 1,298 deals were priced this year compared to 2,097 in 2021, while a total of 123.2 billion dollars were raised compared to 402 billion, respectively.

Expectations of a market rebound this year are high, supported by the glimpse of the first rate cuts, together with the resilience shown by the corporate sector, which has reported better-than-expected quarterly results. This environment paints a relatively optimistic picture of a likely recovery in the IPO market in 2024. Having said this, for these expectations to be met, it is crucial that the gap between the valuation expectations of sellers and the price that public market investors are willing to pay is narrowed. This has been one of the biggest problems faced by many of these processes over the past year.

While the market awaits the 'renaissance' of IPOs, investment banking will have to:
  • Fine tune its advisory services.
  • Focus on the talent of its professionals.
  • Increase the degree of specialization and knowledge of its clients' activities and industries in order to offer 100% personalized support in a potential IPO process.

In the words of an expert

Growing optimism for IPOs

2023 has not been conducive to the international stock markets facilitating access to companies seeking new financing. The inflationary environment, interest rate hikes and global geostrategic tensions have had a significant impact on both companies' decisions on how to finance themselves and their willingness to take the final step toward listing on the stock market.

However, after two years of minimal activity, market participants are optimistic about a likely recovery in IPOs in 2024. Conditions have improved very significantly following a strong recovery in stock markets in a context of lower inflation and expectations of possible interest rate cuts without the feared recession having materialized. This normalization of the economic cycle is undoubtedly a constructive breeding ground for issuers to reconsider turning to the public market to implement their growth strategy and for investors to regain confidence in the primary market's ability to offer them attractive investment opportunities. In this context, investment bankers have been working with issuers to optimize the visibility of their business plans and financial structure, to promote measures to streamline and make more flexible the processes and requirements necessary for the execution of the IPOs, and to ensure a more efficient environment for both issuers and investors.

Conditions have improved very significantly following a strong recovery in stock markets in a context of lower inflation

At BBVA CIB we are optimistic about an increase in these types of transactions, although we will be attentive to a series of risks that may condition the magnitude of the long-awaited recovery. These include:  
  • Valuation discrepancy: the gap in valuation expectations that currently exists between issuers and investors poses the greatest risk to the execution of the significant IPO pipeline we see for 2024. A proper valuation and "price discovery" exercise will be essential to ensure their success.
  • Macro indicators: investors will be cautiously monitoring the progress of the major macroeconomic variables, the development of the various geopolitical crises and the outcome of the busy 2024 electoral calendar, particularly with the US elections.
  • A potential unfavorable aftermarket of relevant IPOs: The performance of the new companies' shares can have a relevant effect on the companies considering a possible IPO. Optimism in September 2023 regarding the reopening of the market was frustrated by the poor share price performance of the few companies that dared to execute their IPO at the end of the summer.

At BBVA CIB, we have been preparing for this recovery scenario for some time. Our teams have been working in recent years to strengthen their advisory capabilities, incorporating talent from different industries, reinforcing ESG advisory teams, and strengthening, through our strategic equity platform together with Oddo-BHF, the dialogue with institutional investors, with the aim of further consolidating our knowledge of the variables that condition their decision-making processes when participating in potential new IPOs.