2024 is shaping up to be another tough year for IPOs. What it takes to turn things around
This week will mark the biggest week for initial public offerings all year. Unfortunately, that may not be enough to lift the IPO market out of its funk. Financial services company OneStream priced its IPO Tuesday night at $20, well above the $17-$19 range that had been discussed. Shares opened Wednesday at $26. That’s the good news. The bad news: The price valued the company at about $4.6 billion, but its last private round of 2021 valued the company at $6 billion, so it’s going public at a roughly 25% discount to its last private round. This is a familiar story now. Many companies raised money in private rounds two to four years ago at very high valuations. Many of those companies are now trying to go public, and investors are balking at high valuations and asking for cuts. The year’s biggest IPO is set to price tonight Meanwhile, investors are waiting for a big deal to price Wednesday night. The stock will begin trading Thursday under the ticker “LINE” on the Nasdaq. Lineage, the world’s largest temperature-controlled warehouse REIT, is expected to price 47 million shares at $70 to $82. The company stores fresh food and other perishables in its warehouses and hopes to raise $3.6 billion. It would be the year’s biggest IPO, more than twice the size of cruise ship operator Viking Holdings, which went public in May. Another tough year No matter how you slice it, 2024 is on track to be the third straight year of a poor IPO market. Only $17.8 billion has been raised so far this year, according to Renaissance Capital. The average for the past decade has been around $50 billion for the entire year. IPOs: Total raised so far 2024: $17.8 billion 2023: $19.4 billion 2022: $7.7 billion 2021: $142 billion (record) 2020: $78 billion 2019: $46 billion 2018: $47 billion Source: Renaissance Capital The problem is valuation The problem is not the market, which, despite the recent downturn, has not yet reached record highs. Interest rates are also more stable. The problem is valuation. “Public investors don’t want to pay 2021 valuations,” said Matt Kennedy of Renaissance Capital. “All the companies that have had their rounds [in the last few years] aware of this. The question is, how much demand is there for these transactions in the public markets? The answer is there is some demand. Companies that want a raised round will be disappointed, but companies that are willing to take a cut can get deals done.” The bottom line: it depends. Many companies are looking at lower valuation pressures to go public and may say, “We have enough cash and enough capital, let’s wait until 2025.” Others may be willing to accept lower valuations — or they may have no choice because they need more cash because they don’t have any more private capital. The upside is a dismal trend over the past few years. IPOs spike one day, then fall in the weeks and months that follow. Poor investors who bought on day one will suffer losses. It’s possible that listing companies at a lower price than their previous private round will benefit IPO buyers, since many companies’ stock prices may stay the same after their debut.
