Is the IPO Market Heating Up? 5 Tips Before Going Public

It’s been quite some time since we’ve seen a robust IPO market. According to Stock Analysis, the best year for IPOs in the last two decades was 2021, with 1,035 new issues. That’s more than twice the next best year (2020) when there were 480. Thus far in 2023, there have been less than 150.

Although the IPO market has cooled considerably, those companies that have braved the public markets over the last few years appear to be doing well, at least according to the only ETF focused exclusively on the IPO market. The Renaissance IPO Index (ticker: IPO), which tracks more than 60 IPOs in their first three years of trading, is up 28.4% year-to-date, outpacing the S&P 500, which is up about 17% this year.

Anecdotally, we’ve been hearing from bankers, lawyers, accountants and other service providers, that the IPO market is poised to heat up in the first half of 2024, and as a result, they are gearing up for a strong (or at least stronger) year ahead. The number of new issues may not reach 2021 levels, but consensus is that we should see more activity than in 2023.

At the same time, there have been several planned IPOs in 2023 that did not make it to market, and general sentiment seems to be that we shouldn’t expect a major spark for the remainder of this year. CNBC recently reported that poor performance for stocks in October and higher-for-longer interest rates are among the reasons many IPO candidates are rethinking or delaying their debuts. As told by Reuters, the CEO of French Automaker, Renault, said that it will not go forward with an IPO for the company’s electric vehicle unit if the valuation is too low. His exact quote was, “We are not crazy.”

While it’s nearly impossible to accurately predict where the IPO market, and the capital markets in general are headed, it’s always a good idea to make sure your company is prepared for when the time is right. If you are a company looking to go public, here are some high-level suggestions to ponder:

• Ensure that you have a good story to tell. For the most part, growing revenues and profitability will attract investor interest, but you’ll need to put together strong talking points that show what you’ve accomplished thus far, and why those accomplishments will serve you well going forward.
• Interview several investment banks before you decide on which one, or ones, will represent you in an IPO. Do they have strong institutional coverage, or is their focus on retail investors? Is there an analyst who covers your sector that can pick up coverage of your stock once your deal is complete?
• Now may not be the right time for your company to test the market. Investment banks have been around for a very, very long time, and most have a fairly good track record on valuing companies. If a bank tells you they don’t think they can get a deal done at the valuation you’re seeking, take stock and mull all options.
• Make sure you have a strong management team that is knowledgeable and prepared to work around the clock to get a deal done. Multiple SEC filings will have to be made, conversations with attorneys will be plentiful, and roadshows, whether virtual or in-person, will take time, preparation and grit.
• Surround yourself with experts. In addition to bankers and attorneys, you may want to consider hiring an IR firm, who can help navigate what is a complex process, both during the IPO and after you are publicly traded. Do you have a solid presentation so that your story will resonate with potential investors? Have you gone through presentation and media training? Do you understand Reg FD and the rules and regulations of being a public company?

Going public can be extremely rewarding. It can provide access to capital to help grow your company. It can introduce you to tons of interesting and smart people. It can provide a platform to tell a growing number of people about why your company can make a difference. But, it is not a decision to be entered into lightly, so make sure you examine any consideration that may come up, so that you’re more than ready for the bright lights of public company stardom.

Laurie Berman, lberman@poondel.com and Chris Casacchia, ccasacchia@pondel.com