With the U.S. elections behind us and a constructive year for equity capital markets coming to a close, boards and management teams are focused on plans for 2025. We are seeing increased dialogue around optimal strategy for positioning, structure and timing for potential IPO candidates. This renewed interest comes as market participants have seen strong returns across the equity market more broadly and in the new issue markets. The S&P 500 is up 27% YTD and Small Caps (Russell 2000) are up 19%. Over the last 3 months, performance in the stock market has broadened to include small cap stocks, which have outperformed the S&P 500 by over 300 basis points. This shift highlights growing investor appetite for a wider set of equities, which bodes well for the IPO asset class.
In the new issue market, 2024 IPOs are up 31% from their offer price and notably, sponsor backed IPOs are up 67%. If the trend continues, it should help create a virtuous cycle of capital that the new issue markets have been lacking over the last 3 years. Of course, the macroeconomic backdrop will continue to play a big role in IPO markets. Interest rates, employment trends, and consumer health remain central to investor sentiment. How companies demonstrate they can thrive across different economic scenarios will be an important positioning and relative value considerations for issuers, sponsors and investors alike.
As we look ahead to 2025, we are seeing two sets of companies emerge in the growing IPO pipeline 1) Companies that are beginning preparations for the first time and 2) Companies that are dusting off shelved IPO plans and processes.
IPO readiness means dedicated work
For first-timers, the typical IPO preparation process requires 6-8 months of dedicated work, making now the critical time for companies to begin positioning themselves for 2025 windows. Pre-IPO preparation has become increasingly important – this includes developing robust financial and operational metrics, building investor materials, and establishing clear investor and analyst communication protocols. We’re seeing companies start their preparation processes earlier than in previous cycles to provide increased timing optionality in a market that has become characterized by distinct timing windows. Further, building credibility with investors requires sustained engagement well before the formal IPO process begins. Seasoned advisors and sector experts help companies get organized, outline the key timing milestones, provide guidance on the foundational positioning story, and assess the wall-street landscape across bankers, research analysts and investors.
Paused IPO plans require a fresh look at almost everything
For companies that previously paused their IPO plans and are now considering engaging with the public markets, preparation requires a fresh look at financial projections, equity stories, and operational metrics. There are also a number of questions to consider. Has the growth strategy evolved? Have new lines of business been added? Have there been significant personnel changes? Has the company performed in line with expectations set during the previous process? It is worth considering how the company might have fared in the public markets in light of performance – and could be a good indicator of IPO readiness.
While the pause has benefited many companies, allowing them to strengthen their foundation and demonstrate sustained execution, in some ways reassessing your IPO strategy can be more difficult than if the company were starting from scratch. Having a capital markets advisor that has a consistent presence in the market and can help issuers strategize around adjustments to the equity thesis and KPIs based on how both the company has grown and how investor focus has evolved. We are focused on ensuring management teams are front footed with key IPO stakeholders and work with them to optimize the strategy of re-engaging research analysts and investors with the refreshed narrative.
Revisit advisor relationships as part of IPO preparation
In addition to internal and equity story readiness, revisiting your advisor relationships remains key. The landscape has evolved significantly, with notable personnel movement across banking, research, legal and accounting institutions. We’re seeing more companies adjust their banking relationships based on team changes, emphasizing the importance of having the right partners through the IPO process and beyond.
From a buyside perspective, institutional investors have increased interest in IPOs, but with heightened selectivity – while recent IPOs have performed well, the sense of “FOMO” has not re-entered the market (yet). The current focus remains on companies with clear market leadership, strong unit economics, and a demonstrated ability to meet & beat forecasts. Profitability – or a clear path to it – remains important, particularly in sectors that traditionally prioritized growth over margins. The bar for public market access is still high, with investors expecting more mature businesses and demonstrated execution capability. Companies that are engaging with investors early will help the buyside develop a deeper understanding of the company and sector.
The path to a successful IPO has become longer and more complex, but well-prepared companies continue to find receptive markets. Success requires IPO readiness: careful attention to timing, thorough preparation, and strategic positioning. The ICR Capital team is actively involved in the market and is partnering closely with boards and management teams as they prepare for potential IPOs. A successful IPO is an important goal, but the ultimate goal is a successful public company for the long term. If you are contemplating an IPO or would like to discuss positioning for a future offering, we welcome the opportunity to share our perspectives. Get in touch.
