Outlook for 2025 IPO Market
12/17/2024
The public equity markets delivered exceptional returns in 2024, with major indices boasting over 20% annual gains. This impressive performance was fueled by a strong economy, significant capital expenditures related to artificial intelligence (AI) and data centers, and the Federal Reserve’s calibrated path of interest rate cuts. Despite these favorable conditions, one notable area remains subdued: IPO activity.
Looking at the above chart, those who recall the fervor of 2020-2021 will remember that the IPO and SPAC markets were remarkably bullish, driven by multi-year low interest rates and abundant liquidity. However, as central banks, led by the Federal Reserve, initiated aggressive financial tightening, IPO deal values and volumes plummeted at the beginning of 2022. The broader public stock market also faced significant headwinds for that period.
Today, the landscape is markedly different. The private market hosts over 1,000 unicorns, reflecting three years of diminished IPO activity. Much of this hesitation stems from companies and investors reluctant to go public at significant discounts to their last funding rounds—Many of these companies have taken this time to strengthen their financials, focusing on sustainable growth models rather than rapid expansion at all costs. Meanwhile, pressure is mounting on private equity and venture capital fund managers to provide liquidity to their investors after an extended period of muted exits.
We believe the recovery of the IPO market is underway. However, the pace has been gradual. The Federal Reserve’s first rate cut in this cycle came late in 2024, with uncertainty regarding election results leaving many IPO candidates unable to capitalize on the initial rebound in public market valuations. Looking ahead to 2025, we expect an acceleration in IPO activity by mid-year as market conditions stabilize, business confidence increases, and pent-up demand is unleashed.
Source: Apollo
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