Is the IPO market broken?

Katie Martin (0:06)

Pushkin. Where are all the shiny new companies rushing on to the stock market? Those sharp suited bankers were convinced that 2025 was going to be the big breakthrough year for IPOs. That's initial public offerings or stock market listings to you and me. Pent up demand, they said, get ready for the rush, they said, it's going to be lit. Well, it's only February, but two things. First of all, it's kind of quiet out there. And secondly, slightly more worrying, the companies that have gone to market have been a bit...

Today on the show, we're asking, is there anybody out there? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist here at FT Towers in London, and therefore part of the European stock market miracle that is kicking the US's butt so far this year. Hashtag team Europe. I'm joined by not one but two of my esteemed colleagues in New York, Aiden Reiter from the Unhedged newsletter and Jenn Hughes, our US markets editor. Jenn, welcome to the show.

Jennifer Hughes (1:12)

Hey there, Katie.

Katie Martin (1:14)

You've done this before, right? So we haven't totally put you off doing this podcast yet.

Jennifer Hughes (1:19)

Not yet, but this could be the one.

Katie Martin (1:22)

It's going to be it. Aiden, we play our cards right. We could really mess this up.

Aiden Reiter (1:28)

The hazing will start soon.

Katie Martin (1:31)

Jenn, you were writing about the sort of humdrum bunch of IPOs of stock market listings that we've had so far this year in the newsletter the other day, while we all fill in for that massive skiver, Rob Armstrong. Tell us what's happening and what's not happening.

Jennifer Hughes (1:48)

Yeah, Rob, vacation Armstrong, as we like to call him around here.

Katie Martin (1:51)

Vacate.

Jennifer Hughes (1:52)

Absolutely. IPOs are one of my favorite topics. And I say that with a straight face, you can say what you like. But this year has been disappointing. I mean, going public, it's a vibe thing, as much as the valuation and the metrics and the number of shares and the price and all the rest of it. It's a real vibe and momentum thing. And the momentum has just not been there. We've had some big deals and they've just fallen flat. They are not good.

Katie Martin (2:24)

A little bit of context is important here, right? So we've had a couple of years where the stock market has absolutely like blown the doors off, right? We've had two years of 20% plus gains in the S&P 500 But the market for new listings has been like really crap.

Jennifer Hughes (2:42)

Yes. I mean, running through that quickly, 2021 was the best year on record, not even including SPACs, especially the blank check companies, not including those, just bog standard, I have a company, I'd like to sell you the shares, kind of public companies. 2021 was this record. And as the stock market fell and the techs fell in 2022, that just killed the vibe, the market. So 2022 was bad for everybody. 2023, as you say, surprisingly good year for stocks, you know, bumper year.

But the surprise was, obviously, the companies weren't ready to go public. Plus, we all thought there was going to be a recession that year, and it didn't happen. So already listed companies got to benefit, IPO's missed out. 2024, you think, well, recession fears have receded, this should be fine. But you've got the US election. So uncertainty, volatility picks up from sort of late summer onwards. Well, frankly, you could say all year on with that one. So that kind of damped it last year. So this year, in theory, as you've been saying, should be their year.

Aiden Reiter (3:52)

It's all about vibes, and the vibes have just been not there the past two years.

Katie Martin (3:55)

Yes. And so a lot of these companies that are waiting to hit the public stock markets are already owned by private equity companies.

Jennifer Hughes (4:04)

Yes.

Katie Martin (4:04)

And the narrative running into this year is that these private equity companies have ended up holding on to these portfolio companies for much longer than they normally would, much longer than they're normally comfortable with, because markets have been a bit sort of weird past few years. And so the idea was this kind of massive kind of waiting list, this pipeline, this is what people in this kind of bit of the market always talk about, this pipeline of companies that are just itching to hit the public markets.

But there's been a bit of a disconnect between, so the private equity firms have been saying, okay, I think this company is worth, I don't know, say for the sake of argument, a billion dollars. And stock market investors have been saying, we think it's worth 500 million. And so there's been this gap. And so the private equity companies have held on and held on and waited for the world to come around to their way of thinking. The idea has been that this year, everyone will agree that they've got to come to some other understanding and agree to disagree. And maybe the private equity companies aren't going to get the returns that they thought they were going to get. But either way, they were going to have to let go of these portfolio companies this year.