Current Trends and Outlook for the Private Market and IPOs in 2024

What are the Trends in the Private Market in 2024?

In 2023, the private market and IPO landscape experienced significant shifts, setting the stage for an intriguing 2024. As we step into 2024, the private market and Initial Public Offerings (IPOs) continue to be at the forefront of financial discussions. Understanding the current trends and outlook for the private market and IPOs is crucial for investors and businesses looking to navigate the evolving financial terrain.

As we explore the current trends and outlook for the private market in 2024, it's crucial to keep in mind the potential impact on investment strategies and business decisions.

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Trends in the Private Market in 2024:

1. Companies Staying Private for Longer

Firms are choosing to remain private for extended periods, drawn by the availability of ample private capital. Data from PitchBook reveals that the average time from founding to an initial public offering (IPO) has increased by 50% over the past decade. In 2023, the median time for a company to go public stood at 12 years, compared to just 8 years in 2013.

2. Growing importance of Artificial Intelligence (AI)

In 2024, private equity firms will expand their use of AI, with a focus on developing effective and efficient uses for AI and GenAI. The EY CEO Outlook Pulse reveals that 7 out of 10 CEOs recognize the need to move forward with AI to avoid falling behind the competition.  

AI mergers and acquisitions are expected to surge to above $60 billion, primarily driven by AI acquisitions, with private equity firms becoming essential buyers of companies growing 10-25%, commanding a premium of about 10-15% to the market.

3. Increasing Regulatory Scrutiny

Private market firms are expected to adapt to increased regulatory scrutiny in 2024 by prioritizing event-driven and existing regulations to capitalize on untapped opportunities. Regulators are calling for more transparency in private markets, leading to a step change in the level of supervisory scrutiny in this sector.  

The regulatory and policy changes are expected to redefine the operating landscape for private capital firms, emphasizing the need for agility, foresight in investment decisions, and a re-appraisal of risk assessment and future projections.

What is the outlook for IPOs in 2024?

The outlook for initial public offerings (IPOs) in 2024 appears to be a mix of challenges and opportunities.  

Some key points to consider:

The tech IPO market experienced a rebound in 2023, with three companies (Instacart, Klaviyo, and Arm Holdings) breaking through, giving hope for more exits for venture-backed unicorns.

• IPO proceeds for listings with a market capitalization of at least $50 million rose to $19.4 billion, up from $7.7 billion in 2022, but this represents an 86% plunge from $142.4 billion in the same period in 2020.
• Public-market investors are more interested in profitability than growth at all costs, and they often look for larger, more established companies that can sustain a robust market capitalization.
• IPO activity, which started to pick up in recent months, is expected to accelerate in the back half of 2024, especially if the Federal Reserve starts cutting interest rates.

Trends to look out for in IPOs in 2024:

1. Market Uncertainty:  

The IPO landscape in 2024 is characterized by uncertainty, influenced by factors such as market conditions, investor sentiment, and geopolitical dynamics.

The CFO provides insights into the IPO landscape in 2024, emphasizing the significant influence of market conditions and investor sentiment on the success of companies going public. It underscores the need for companies to demonstrate strong fundamentals, a path to profitability, and resilience amid weak economic conditions, reflecting the uncertainty in the market.

2. Tech IPO Resurgence:  

After a two-year drought in tech IPOs, the market is poised for a resurgence in 2024. In Q3 2023, the US IPO market saw 37 IPOs raising $8.5 billion, with several high-profile deals.  

The expected reduction in interest rates by the Federal Reserve is anticipated to contribute to the comeback cycle for tech IPOs, with a strong IPO pipeline projected in areas such as AI, enterprise cloud software, financial tech, and space tech.

Companies with IPO aspirations must be prepared to navigate today's market dynamics, as IPOs coming to market are largely scaled, profitable companies, often with name recognition. Investors are prioritizing companies with compelling growth prospects and a clear path to profitability.  

3. Expectations for New-Age Tech IPOs in India:  

The number of new-age tech startup IPOs is predicted to rise in 2024, driven by the surge in activity in the Indian IPO landscape and the healthy pipeline of startups. The year 2024 is expected to see a sharp increase in new-age tech IPOs, with reasonable valuations and a healthy pipeline of startups contributing to the anticipated upsurge.

Together, these factors depict a sense of careful optimism and expectation for a revival in IPO engagements in 2024. The spotlight is especially on the technology sector and the possibility of a prolonged reopening of the IPO market.

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What are the factors driving the growth of the private market and IPOs in 2024?

The growth of the private market and IPOs in 2024 is driven by several factors:

1. Macroeconomic Factors  

Global economic uncertainties, volatile interest rates, and geopolitical tensions are influencing the IPO market. However, macroeconomic factors such as upcoming U.S. elections and ongoing conflicts are also important considerations.

2. Interest rates and Economic Conditions

Interest Rates and Economic Conditions: In 2024, the growth of the private market and IPOs will be influenced by interest rates and economic conditions. The potential for 2024 interest rate cuts is expected to attract investors back to IPOs by improving liquidity and return outlooks.

3. Value creation

Companies are increasingly focusing on value creation through more efficient use of working capital and exploring expanded opportunities via the retail channel. The focus on value creation can drive growth in the private market as companies seek to maximize their financial performance.

4. Indian Tech Startup IPOs  

In 2024, the Indian tech startup IPO landscape is expected to see a surge in activity, with several companies (Ola Electric, GoDigit, and OYO) filed or planning to file DRHPs to list on Indian exchanges. Some of the most highly awaited IPOs of 2024 include Ola Electric, set to be one of the biggest tech sector listings in India.  

In 2023, India witnessed a significant increase in the number of IPOs compared to 2022. The third quarter of 2023 alone saw 21 IPOs in the Indian main market, a 425% surge compared to the same quarter in 2022. The total number of IPOs for 2023 was 57, the second highest in the past decade, only surpassed by 2021 (63). This number is expected to rise in 2024, driven by strong economic activity and positive investor sentiment.  

These factors collectively contribute to the growth of the private market and IPOs in 2024, shaping the landscape for companies considering going public and investors looking for opportunities.

Conclusion

As we head into 2024, the outlook for initial public offerings (IPOs) appears to be positive, with enthusiasm for IPOs at a high level and smaller deals emerging. However, there are several factors that IPO candidates should be prepared for, including moderating inflation, potential interest rate cuts, government policies and regulations, recovery of economic activities, geopolitical tensions and conflicts, environmental, social, and governance (ESG) agenda, and global supply chain considerations.

In conclusion, the 2024 outlook for private markets and IPOs is promising, but candidates must be prepared for a variety of factors that could impact their success. By staying informed and considering alternative IPO processes and financing methods, companies can better position themselves for success in the evolving market landscape.