A hostile financial environment deterred many companies from going public last year, but an easing of monetary policy and lowering inflation could launch a flurry of initial public offerings (IPOs) in 2023.
Only $26bn (£22.9bn) was raised from IPOs in the US last year, compared to $350bn the year before, according to data from PwC, but public offerings could come bounding back if the Federal Reserve changes course.
Mike Bellin, US IPO co-leader at PwC, said: “As we get more certainty on inflation and the Fed's response to it via interest rate hikes, we expect the market to likely open up in the second half of 2023 for high-quality, profitable companies and companies with a path to profitability.”
US IPO proceeds and deals over the past decade
Source: PwC
Sophie Lund-Yates, lead equity researcher at Hargreaves Lansdown, agreed that markets can expect increased activity from IPOs in 2023, with several high-profile companies rumoured to go public.
Here, we look at three prominent businesses that the Hargreaves Lansdown analyst thinks could become available to investors this year.
SpaceX
Spacecraft manufacturer, SpaceX, could become publicly available this year much like many of founder Elon Musk’s previous ventures, according to Lund-Yates.
Musk took Paypal public in 2002 and Tesla entered the market in 2010, with SpaceX potentially following this trend in 2023.
Since launching in 2002, the rocket maker and space transport company has amassed an estimated market cap of $137bn, with a workforce of around 11,000.
If an IPO is indeed in the works, Lund-Yates warned investors to be cautious not to overpay for expensive shares given its size.
She said: “This makes us wary of what any potential valuation at IPO would be. A heady topic like space exploration could spark a frenzied interest, which would be at more risk of ups and downs.”
However, its solid backing from government contracts could give the company’s financial health some robustness through varying market conditions.
SpaceX closed a $1.4bn deal with NASA in August for five more astronaut missions, with another $1.15bn contract acquired from the agency in November for a crewed moon landing.
Lund-Yates said: “This makes it easier to tell what revenues could look like in the future and can help companies weather tough times. That said, making and testing spacecrafts is exceptionally expensive. That puts question marks over being able to grow margins.”
ARM
British semiconductor and software design business, ARM is set for a return to the London Stock Exchange this year having been taken private in 2016 by Japanese conglomerate SoftBank.
Rumours of an IPO were restarted after a $40bn takeover bid from US tech firm Nvidia collapsed in February last year. The American artificial intelligence company cited “significant regulatory challenges” had prevented its acquisition of the UK-based business.
Instead, ARM’s management suggested that issuing public shares could make up for the lost deal, with the rumoured IPO potentially launching this year, with an estimated valuation of $60bn.
Lund-Yates said: “Given the wider tech sell-off seen in recent months, we question if this valuation would be achievable, and more importantly, if it’s sustainable.
“Markets can get carried away with tech valuations at the IPO stage. It’s important to fully understand the group’s ultimate valuation compared to earnings, if a prospectus is released.”
On the upside, Lund-Yates said that ARM’s compelling business model makes it “certainly worth attention this year”.
Rather than manufacturing computer chips itself, the company creates intellectual property and sells licenses for its tech components to other businesses.
Lund-Yates added: “This is a model we’re supportive of and it’s easy to see why the market would be excited to see shares in the company listed on the market.”
Databricks
This US-based company processes data to solve problems for its clients and improve business outcomes. It went into partnership with Amazon Web Services in 2015, followed by a collaboration with Microsoft in 2017 and Lund-Yates said its involvement with the tech giants means “there’s a lot to be excited about”.
It is currently valued at $38bn, but it could become overpriced if it exceeds $40bn when it goes public, according to Lund-Yates.
She said: “Performance could be held back if corporations decide to rein in technology spending during the current inflationary environment.
“As we’ve seen before, having a great product doesn’t guarantee success. As a tech-heavy stock, we’d also be keeping a close eye on the group’s valuation.”