US Capital Markets Mid-Year Report: IPO Resurgence and a Possible Turning Point | JD Supra

Main points

• Companies that plan strategically in 2023 are in an advantageous position to benefit from the resurgent US IPO market in 2024.
• Despite continued high interest rates, debt markets have remained healthy in 2024, with a significant number of refinancings and new capital raising transactions.
• The M&A market, including the increasingly popular joint venture structures, has contributed to additional capital markets activity.
• Private equity and other non-traditional or industry-specific financing structures continue to be important options for many companies to consider as they evaluate alternative ways to raise capital.

As a testament to the resilience and ability of the US capital markets to adapt, IPOs, debt markets and mergers and acquisitions (and related financings) have shown significant growth through 2023. Activity to date in 2024 indicates that this year could be the start of a positive turning point, although volatility is likely to continue as markets anticipate and react to ongoing global and economic factors.

The year began with some challenging conditions for capital markets:

• Continued high interest rates, cost of capital and inflation.
• Concerns about the state of the US and other major economies.
• Ongoing geopolitical uncertainty.
• Increased focus on geostrategic areas such as climate and sustainability initiatives, artificial intelligence (AI) and upcoming elections.

(See our December 2023 article “How Companies Are Adapting to Volatile Capital Markets and Planning Ahead.”)

Despite the upcoming US presidential election, the IPO and funding windows are expected to remain broadly open. As issuers and investors consider the big picture of overall market activity, advance preparation and strategic planning continue to be essential for those looking to take advantage of open market windows and opportunities.

Positive sign in the US IPO market

The US IPO market has shown promising signs of breaking out of the IPO drought of 2023. Through May 31, 2024, 76 IPOs raised $15 billion in proceeds, compared to 68 IPOs that raised $9 billion in proceeds in the same period in 2023. In addition, by May 31, 2024, 71 companies have filed or announced the confidential filing of IPO registration statements.

While the number of offerings in the first five months of 2024 has increased only modestly compared to the same period in 2023, estimated revenues will exceed $35 billion by the end of 2024 if the current rate of IPOs is sustained . The 2024 numbers are not expected to reach the IPO levels of 2020 or 2021, but these are the most positive signs for IPO growth since 2022.¹

Some highly anticipated IPOs completed so far in 2024 include:

• Viking Holdings, parent of Viking Cruises (largest US IPO to date this year, at $1.5 billion).
• Reddit (the first IPO for a major social media company since Pinterest in 2019, and which offered Reddit users an opportunity to participate in the IPO).
• Astera Labs (a data center connectivity chip company for cloud infrastructure and AI).
• Rubrik (a Microsoft-backed tech marketing firm with generative AI potential).

Of the IPOs completed this year, approximately:

• 20% were in the technology sector, including AI-related products and services.
• 23% were in the healthcare industry.
• 20% were in the financial industry (consisting of firms and institutions that provide financial services to commercial and retail customers).

Issuers, shareholders and investors seem to have found a way to connect with valuations and adapt to – and manage – ongoing economic and geopolitical challenges. Of the 76 IPOs as of May 31, 2024, approximately 49% were still trading above their IPO prices.

Companies seeking to go public must closely monitor global markets and events and remain flexible as they consider the appropriate timing and strategy. By working with their advisors to prepare in advance, they can position themselves to move quickly when market opportunities arise.

Increase in debt service activity

US debt markets also opened in 2024 with increased activity compared to 2023. In the first five months of 2024, issuance of investment-grade and high-yield bonds totaled about $795 billion, an increase of 7.6% in the first five months of 2023.

Proceeds from high-yield bond issues almost doubled in the first five months of this year ($255 billion) compared to the same period in 2023 ($129 billion). In January 2024, the high-yield bond market had its busiest month since November 2021, with $31 billion issued.

Proceeds from investment-grade bond issues in the first five months of 2024 ($540 billion) were slightly lower compared to the same period in 2023 ($614 billion). However, Q1 2024 recorded the highest quarterly level of bond M&A activity ($79 billion) since Q1 2021.

As of May 31, 2024, the average coupon for the 2024 investment grade bond offerings was 5.24%, which is similar to the 2023 average of 5.25%.

Meanwhile, the average coupon for 2024 high-yield bond offerings through May 31 was 7.44% – down significantly from the 2023 average of 8.42%. High-yield bonds offered in 2024 have an average maturity of 6.42 years, up slightly from 6.16 years for 2023.

Almost $2 trillion in global corporate debt is scheduled to mature by the end of 2024, and approximately 31% of all corporate debt (including bonds, loans and revolving credit facilities from financial and non-financial corporate issuers) will be due. in the next 12 to 18 months. . Of US investment grade bond offerings year to date, approximately 29% were for refinancing purposes, while of US high yield bond offerings year to date, 78% were for refinancing purposes.

Companies generally start looking at refinancing debt at least one to two years before it matures, so refinancing activity is likely to be substantial through the remainder of 2024.

The continuing importance of private equity and other alternatives

Even with increased activity in traditional equity and debt markets, private equity and other alternatives remain important capital market options for companies. According to PitchBook, global private equity under management is forecast to grow to $20 trillion by 2028 from $13.1 trillion as of June 30, 2023. This includes all categories, including private equity and venture capital, private debt, real estate and real assets.

Among other trends, private equity markets have seen increased investor interest in:

• Fast growing business sectors (e.g., AI, clean energy, healthcare technology and e-commerce logistics sectors, allowing investors to diversify their portfolios and reduce their exposure to broader market risks).
• Environmental, social and governance (ESG) considerations.
• Emerging markets, such as Latin America and Asia.

Even this year, direct lending transactions continue to expand at a rapid pace. Through May 31, 2024, US companies raised over $61.5 billion in direct lending transactions where the amount was known, compared to $17.2 billion in the corresponding period in 2023.

Companies can use private equity strategies, either alone or in combination with traditional structures, to achieve specific financing goals and capital structure objectives. (See our March 2024 article “Private equity remains an attractive option for many companies.”)

The availability of private capital has also supported the growth of creative financing structures, including joint ventures and project-focused financing. These agreements can be particularly useful for infrastructure (including digital infrastructure) and technology projects that have high initial costs and can therefore benefit from private investment.

Examples include:

• Intel’s recently announced joint venture with Apollo Global for an $11 billion investment in Intel’s manufacturing plant in Ireland.
• Occidental Petroleum’s latest joint venture with Berkshire Hathaway Energy to mine lithium in California.

Looking ahead to 2024

Success in 2024 will be about seizing opportunities and being prepared to act to take advantage of market windows.

Companies considering an IPO, a conventional debt offering and/or securing financing through private equity should work with advisors to increase their readiness for the public and private markets. This may include preparing, evaluating and updating quarterly financial statements and policies that may affect stakeholder interests.

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1 Data in this article is from Bloomberg, PwC, Renaissance Capital, Refinitiv, CreditSights, Stock Analysis and S&P Global.

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