Despite high interest rates and geopolitical uncertainty in the Middle East and Ukraine, US IPO markets rallied slightly last year after a grim 2022.

US IPO proceeds (including SPACs) reached US$23.94 billion last year, up marginally from US$8.6 billion in 2022. However, the number of IPOs slipped from 180 in 2022 to 154 last year.

View full image: US IPO deal value, 2017 – 2023 (PDF)

The improvement in the year-on-year IPO proceeds figures, however, does not change the fact that the past two years had been challenging for US IPO markets. Although IPO proceeds in 2023 may have improved on 2022 levels, they were still well shy of the US$316.63 billion in proceeds recorded at the peak of the market in 2021 and less than half of the US$62.56 billion in proceeds posted pre-pandemic in 2019.

Better times ahead?

After two years of slow IPO activity, US investors and companies are cautiously optimistic that IPO activity could gather momentum in 2024.

View full image: US IPO count, 2017 – 2023 (PDF)

It is still early, but IPO activity has had a strong start in 2024, with global stock markets recording the best first-quarter performance in five years in Q1 2024. The MSCI index of global stocks showed gains of more than 7 percent during the first three months of the year, while the S&P 500 hit record highs as a soft landing for the US economy and a boom in the artificial intelligence industry lifted markets.

Moreover, in 2023 and into 2024, the US's position as a global magnet for cross-border listings has remained undiminished, with high-profile global businesses based in other jurisdictions turning to the deep and liquid US stock markets to raise capital over domestic options.

For example, German shoemaker Birkenstock secured a market valuation of US$8.6 billion when it listed on the New York Stock Exchange in October 2023, while UK-based chipmaker Arm Holdings was valued near US$60 billion following its IPO a month earlier on Nasdaq.

Momentum behind cross-border listings in the US has carried into 2024, with Kazakhstan-based fintech business Kaspi.kz (see also section 5 on Bright spots: Sweden and CIS present opportunities after a challenging 2023) valued at US$17.5 billion following its Nasdaq IPO in January.

Steady performance encourages new issuers

It is hoped that the steady performance observed post-IPO and across US stock markets generally will encourage more companies to pursue IPOs in the coming months.

According to the Financial Times, citing Dealogic data, companies that raised US$100 million or more when listing in 2023 beat the S&P 500 by an average of 18 percentage points. Moreover, the Renaissance IPO Index, which tracks the performance of companies that have listed within the past three years, climbed 44 percent in 2023, also beating the S&P 500.

However, not all IPOs have traded up after listing, and there have been periods of volatility in some stocks post-IPO. Nonetheless, on average, IPO issuers have delivered for investors, improving confidence in the investor community.

Meanwhile, the S&P 500 and Nasdaq Composite Index closed at record highs at the beginning of March 2024. This will also encourage potential US IPO candidates looking to list when the backdrop for achieving an attractive valuation has improved compared to a year ago.

Technology is key

Computers and electronics were the most active sector for IPOs in 2023, with US$8.24 billion in proceeds, and the market is expected to remain receptive to technology companies in 2024—especially those with AI applications.

View full image: Top 10 IPOs, US Exchange, by deal value, in 2023 (PDF)

Investors have shown strong support for chipmakers producing hardware and technology used to power AI tools since the start of the year. For example, the AI boom drove up shares in chipmaker Nvidia, which has climbed to a value of more than US$2 trillion for the first time early this year. AI appetite has also supported the strong gains in Arm Holdings (up more than 80 percent after the first two months of 2024) following its IPO last year.

On the back of this positive momentum, Astera Labs, a provider of chips-to-cloud computing and AI infrastructure companies, successfully pursued a listing where its shares reached 72 percent following its market debut, valuing the company at approximately US$9.5 billion.

Other tech stocks have also traded well this year (as of March 2, the Dow Jones US Technology Index has climbed 61.33 percent during the past 12 months), laying the foundation for big-ticket technology IPOs throughout the year.

Biotech has been another resilient market for US IPOs. Biotech companies view stock markets as a reliable route to funding research and clinical testing programs, while investors have sought exposure to the space because of the potential for high returns from successful biotech business.

During the first six weeks of 2024, biotech IPO activity was strong, with a string of biotech IPOs worth more than US$100 million proceeding to put the sector on track for its best year of IPO activity since 2021, according to BioPharma Dive. For example, in January, the IPO of cancer drug developer CG Oncology has been one of the biotech highlights, with the company's share prices rising by more than 50 percent on listing to value the business at US$1.75 billion.

Positive but pragmatic outlook

Even though the outlook for 2024 is improving, ongoing geopolitical tensions and elections throughout the world, including a looming US presidential election at the end of 2024, pose persistent challenges.

Meanwhile, the strong stock market gains observed this year have been driven by the largest listed companies, and while IPO conditions for growth companies are improving, the market is still relatively choppy for smaller issuers.

Market stakeholders, however, will be hoping that a strong start to the year, peak interest rates and pent-up demand will outweigh these challenges and encourage more issuers to proceed with IPOs in 2024.

_{White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.}

_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

_{© 2024 White & Case LLP}