In 2023, the initial public offering (IPO) market witnessed a significant slump, marking a departure from the bullish trends of the past. This year’s total volume of IPOs in the U.S. is on track to only marginally exceed that of 2022, which was already marked as the most challenging year for IPOs in the U.S. in over a decade.
The year 2023 posed challenges for companies entering the public market. Several high-profile IPOs faltered after their public debuts, losing market value and dampening investor enthusiasm. Three of the largest IPOs this year—Instacart, Kenvue and Birkenstock—are trading below their offering prices. And a fourth, chip designer Arm, is only trading near its debut price. This trend can be attributed to several factors, including global economic uncertainties stirred by geopolitical tensions, volatile interest rates, and inflation struggles. These issues led to heightened market volatility, making investors hesitant to invest in newly listed companies. Additionally, many companies were perceived as overvalued at listing, leading to a swift correction post-IPOs.
As we approach 2024, the IPO landscape is expected to be shaped by a more cautious optimism.
Although the lukewarm performance of recent listings might delay the IPO ambitions of many technology companies, a considerable number of potential IPO contenders remain poised to make their moves. Globally, there are 1,200 unicorns, or private companies valued at $1 billion or more, collectively worth $3.8 trillion. The reality is they can’t indefinitely delay their plans to go public, particularly as the availability of late-stage venture capital diminishes. This constraint is expected to intensify the momentum towards IPOs in 2024, driving companies to enter the market even if the conditions are less than ideal.
Large private companies that have already hinted at going public next year include Shein, Panera Brands, Rubrik, Reddit, Circle and Skims. Fast fashion giant Shein, valued at around $66 billion, and Panera Brands, taken private by JAB for $7.5 billion in 2017, have both confidentially filed to go public in the U.S. as soon as 2024. Once finalized, Shein could be the biggest IPO in years.
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The IPO market in 2024 is set to embark on a path of cautious recovery, shaped by the lessons of the past year. Public market investors have put premiums on companies that are profitable, grow at a healthy rate, and have reasonable multiples. However, it’s important to consider the influence of macroeconomic factors such as the upcoming U.S. elections, ongoing conflicts in the Middle East, interest rate uncertainties, and the looming risk of inflation re-escalating. Additionally, unless there is an increase in float sizes and more anchor investors, we can expect volatile performance from new IPOs right out of the gate.
A low float for an IPO can often result in more volatile trading post-listing since there are a limited number of shares that are publicly trading. Anchor investors are qualified institutional buyers, usually strategic or crossover investors, who are offered shares in an IPO just before the IPO roadshow begins for subscription. Anchor investors usually commit to investing a large amount—often 10 percent to 20 percent—in an IPO and can send a strong indication of a realistic value for determining the IPO price. This investment is usually written on the cover of the prospectus and signifies strong confidence for the offering to the broader institutional buy side and retail investors.
These elements could potentially cause further delays in the initiation of new IPOs. Companies looking to go public must therefore navigate these complexities with strategic foresight, preparing for a landscape that, while promising, remains fraught with uncertainties.
Joe Endoso is the president of Linqto, an investment platform that provides accredited investors with the ability to invest in private companies backed by private equity or venture capital.
