M&A set to take centre stage as IPO interest wanes, says investment bank
The rate companies are going public is declining worldwide, with reasons for this drop-off varying across regions
2024 was one of the quietest years in history for UK IPOs, as only 18 companies listed on the London stock market. Globally, IPO volumes fell by 10%, highlighting a downward trend and a shift towards alternative exit options, generally offering much greater liquidity to shareholders.
According to Victor Basta, managing partner of Artis Partners, the sell-side M&A and growth financing specialists for technology companies, the unpredictability of IPOs is encouraging founders to explore seriously the possibility of M&A exits, with fewer companies likely to list over the next two years.
Basta said: “A common theme in international markets is dwindling interest in IPOs, but this is happening in different areas for different reasons. In the UK net outflows, coupled with investors generally more oriented to company profitability rather than pure growth, are turning founders away from the IPO route. Ultimately the market does not function for growth stage companies, which explains its recent unpopularity.
“In contrast, US companies struggle with the sheer cost of being public and the sheer number of already-public companies vying for attention. In this region, IPOs really only make sense for organisations with a minimum $1bn market valuation, significant name recognition and a strong claim to leadership in their sector – a desirable, but uncommon, mix of attributes. Otherwise, sub $1bn companies are generally referred to as ‘micro-caps’.
“The unpredictability of public markets is unattractive to founders, even if we discount the shocks caused by geopolitical factors and unexpected market entrants; a company can do everything right and still see its valuation fall.
“Finally, the process itself lacks stability, as it’s impossible to be certain an IPO will happen until moments before the company actually goes public. On the other hand, M&A has a reputation for reliability and certainty that breeds confidence. It’s very rare that a strategic buyer, or even a committed private equity acquirer, pulls out at the last minute; they simply have too much at stake by that point.”
Basta concluded: “While no doubt IPOs will come back in 2025-26 (at least in the US), a sudden rebound in IPO volumes is unlikely, as there are structural issues with stock markets around the world – all differing in nature – that cannot be fixed overnight. As a result, many founders are increasingly looking to M&A exits as a dependable instrument for securing a high exit value.”