US IPOs Poised for Continued Recovery Following Strong Comeback, Reports Reuters

By Niket Nishant and Manya Saini

The U.S. initial public offering (IPO) market has shown a robust rebound in 2024 following nearly two years of inactivity. This resurgence is largely fueled by diminishing recession concerns and a significant rally in the stock market.

However, investor preference remains focused on companies demonstrating a clear route to profitability, moderating overall enthusiasm. Analysts anticipate that the recovery will become more established in the upcoming year.

Mike Bellin, the IPO Services Leader at PwC U.S., observed, "Currently, the recovery in the IPO market feels quite cautious and analytical," pointing to uncertainties surrounding the election and skepticism regarding the Federal Reserve’s capacity to steer the economy toward a soft landing. He added that as uncertainties lessen and momentum builds, investors might be more inclined to invest in riskier IPO options.

On Thursday, shares of BioAge Labs, a developer of weight-loss drugs, began trading at 25% above their IPO price. Similarly, BKV, a producer, and Guardian Pharmacy, a healthcare firm, both saw a 3% increase at the market open.

STRONG DEBUTS

According to data from Renaissance Capital, companies that secured at least $100 million through their IPOs this year have experienced an average trade-up of about 25%, with first-day gains averaging 16%. The Renaissance IPO Index, a key indicator of broader trends, has risen approximately 14% so far this year. Notable companies that went public include Reddit, Lineage, and Concentra.

BIOTECHS SHINE

September has emerged as the busiest month for healthcare IPOs this year, based on Dealogic data, which contrasts with a trend of risk-averse investors who had previously withdrawn from biotech investments due to a depletion of funding amid high interest rates. Ross Carmel, a partner at a securities law firm, stated, "Biotech is a very capital-intensive business," noting that access to public markets allows for quicker capital raising compared to remaining private.

POSITIONED FOR ACCELERATION

Despite the improvements in the IPO landscape, the funds raised from these public sales still fall short of the 10-year historical average, according to Renaissance Capital. Angelo Bochanis, a data and index associate at Renaissance, remarked that "the August sell-off, persistent inflation, and concerns about the upcoming election have likely discouraged many potential issuers considering fall IPOs." Increased investor scrutiny may also have led several startups to postpone their listings until they achieve stronger financial positions.

Bellin indicated a shift in the scale of companies going public, noting that five years ago, firms typically required around $100 million in annual recurring revenue, while the current expectation is roughly double that amount. Nonetheless, there is optimism for increased activity in the coming year, as Bochanis envisions a steady recovery and a surge of new public offerings.

ARTIFICIAL INTELLIGENCE

In the realm of investments, offerings related to artificial intelligence are particularly attractive, as the narrative around AI captures investor interest. Dan Coatsworth, an investment analyst, explains, "Any AI-related opportunity should have an appealing story, and investors tend to gravitate toward compelling narratives." However, it is likely that investors will demand more concrete evidence of AI’s benefits to business models. Bellin reiterated that today’s investors are diligent in scrutinizing AI claims, prompting significant inquiries into the actual advantages offered.