Market Demand for Private Equity-Backed IPOs Is Heating Up

The U.S. initial public offering (IPO) market is experiencing a significant resurgence, particularly in private equity-backed offerings. After years of market volatility and regulatory challenges, several indicators suggest that investor appetite for these IPOs is growing.

• Substantial Growth in IPO Activity: By June 30, 2024, the U.S. saw 69 IPOs priced, marking a 32.7% increase compared to the previous year.¹ Total proceeds reached $16.7 billion, an impressive 87.3% surge from 2023.¹

• Private Equity Firms Leading the Way: Keith Canton, JPMorgan’s head of Americas equity capital markets, noted that the IPO market for private equity-backed companies is "very much open."¹ Firms are eager to reduce debt loads and provide liquidity for existing investors.

• Middle-Market Transactions Driving Exits: Middle-market deals are powering the rebound. Buyout funds recorded 1,700 exits through the end of the third quarter, a 10% increase from the same period last year.² However, the average deal size decreased to $477.73 million, down 36.7% from the 2023 average, indicating that smaller deals are driving activity.²

• Significant IPOs on the Horizon: Several private equity-backed companies are set to go public, including StandardAero, which raised $1.44 billion in its IPO backed by Carlyle Group.³ Canton estimates that a dozen companies could go public on U.S. exchanges in the coming quarter.³

• Extended Holding Periods: The average holding period for private equity portfolio companies has increased to 5.9 years in 2024, up from an average of 5.5 years over the past decade, reflecting the challenges in divesting assets in the current economic environment.²

What Does It Imply

The increasing demand for private equity-backed IPOs carries several implications:

• Shift in Capital Raising Strategies: With institutional investors nearing full allocation limits, private equity firms are turning to public markets and individual investors to raise capital, tapping into one of the largest untapped pools of capital in the world.

• Regulatory and Structural Challenges: Outdated regulations and traditional operational models can make accessing these investment opportunities challenging for individual investors. Approximately 80% of all private fund offerings are limited to qualified purchasers, restricting access.¹

• Innovations in Investment Vehicles: To stay compliant and broaden access, private equity firms are adopting alternative structures like interval and evergreen funds. These vehicles can offer more flexibility and liquidity to investors, although they may come with different fee structures.

• Opportunities for Wealth Platforms: Wealth platforms play a crucial role in democratizing access to these deals, enabling individual investors to participate in opportunities that were traditionally limited to institutions.

Why You Should Care

• Expanded Investment Opportunities: Individual investors now have more avenues to participate in private equity-backed IPOs, thanks to wealth platforms that facilitate access to these deals.

• Diversification Benefits: Including private equity-backed IPOs in an investment portfolio can offer diversification, potentially enhancing returns and reducing risk.

• Due Diligence is Essential: As with any investment, it's important to research and understand the specifics of the offering, including the investment vehicle, fees, and the underlying company's fundamentals.

Conclusion

The resurgence of market demand for private equity-backed IPOs signals a notable shift in the investment landscape. With wealth platforms providing greater access, individual investors have new opportunities to participate in these offerings. Staying informed and performing thorough due diligence will be key to navigating this evolving market effectively.

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_{1. PYMNTS.com, JPMorgan Chase: Private-Equity Backed IPO Market Is Favorable, 2024.}

_{2. S&P Global Market Intelligence, Middle-market deals drive rebound in private equity exits, October 2024.}

_{3. Foley & Lardner LLP, What to Expect from the IPO Market in the Second Half of 2024, 2024.}

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