ICR’s Q3 2023 Equity Capital Markets Update & Outlook report shows equity capital markets having robust issuance activity in the third quarter, despite a more challenging market backdrop emerging in the latter part of the quarter. Several marquee IPOs priced as investors showed renewed demand for profitable growth IPOs, and ~$25bn in follow-on and block trades as sponsor monetization offerings increased with ~$14bn in secondary proceeds raised.
“Given the recent momentum in ECM issuance, ICR Capital is engaging in an increased level of dialogue with potential issuers targeting primary and secondary equity capital markets transactions targeting both the balance of this year and throughout 2024,” said Steve Parish, Co-Head of ICR Capital.
“Offering tactics in the equity capital markets are evolving with issuers and underwriters focusing on strategies to reduce execution risk,” said Lee Stettner, Co-Head of ICR Capital. “For example, all four IPOs to price in Q3 included cornerstone investors on the cover of the prospectus.” Stettner continued, “With issuers undertaking multiple rounds of Testing the Waters meetings pre-IPO launch, it has been increasingly important to signal demand strength from blue-chip investors at the launch of the IPO to enhance execution confidence.” Of note 50% of non-biotech IPOs YTD have had cornerstone demand which on average have covered 34% of the initial deal size at launch.
“Looking forward, views are mixed on whether cornerstones will be a long-term fixture of IPO execution, and if they are beneficial to aftermarket trading,” added Lindsay Hyde, Managing Director ICR Capital. “Regardless, top institutional investors are looking to meet with private companies 3 -4 times before an IPO.” ICR is currently assisting dozens of companies with enhancing their awareness in the capital markets well before a decision is made on an IPO.
On the follow-on and block side, we saw similar de-risking strategies with many issuers utilizing over-the-wall marketing to assess market receptivity and build demand in advance of a public offering launch. In addition, with the increase in secondary sell-down activity, multiple issuers pursued concurrent buybacks alongside a public market offering to accelerate the monetization process and improve supply / demand tension. Of note, nine issuers bought back $1.5bn in Q3 concurrent with secondary offerings.
Overall, ICR is optimistic that the market activity rebound will continue into Q4 and the first half of 2024. On the IPO front multiple issuers that had been monitoring the market from the sidelines have initiated or are planning to kick-off their process, which should lead to an active new issue calendar in 2024.
For full details, download the complete report.