Will IPOs ever come back?

Episode Summary

Executive Summary: The episode examines why IPO activity has been unusually weak despite strong equity markets, arguing that companies are staying private longer, private equity is delaying exits amid valuation gaps, and regulation plus pension shifts have hollowed out public markets. The guests say the result is less transparency, less access for ordinary investors, and a weaker public-market ecosystem, though they expect U.S. IPOs to improve somewhat in 2025.

Main Topics: Why IPO activity is so weak (Priority: 5/5): The hosts contrast buoyant stock markets with a sharp slowdown in new listings worldwide, especially in the UK and Europe, and question why the expected IPO rebound has not materialized. Companies staying private longer (Priority: 5/5): A major explanation offered is that high-quality companies increasingly prefer private funding because it is less burdensome, less scrutinized, and often more valuable than listing publicly. Private equity backlog and valuation standoff (Priority: 5/5): Private equity and venture capital firms are sitting on a large inventory of assets and are reluctant to float them at lower valuations, creating a backlog and delaying exits. Regulation and policy damage to public markets (Priority: 4/5): The discussion argues that rules affecting broker research, investor commissions, and pension allocations have unintentionally weakened the public-market ecosystem, especially for smaller companies. Regional divergence in IPO markets (Priority: 4/5): The U.S. remains open for listings and may recover further, but Europe, Asia, and especially the UK are described as much weaker due to smaller domestic demand and fewer large-scale companies. Why public markets matter (Priority: 5/5): The guests argue public listings support transparency, accountability, broader participation in wealth creation, and better tax and governance outcomes than private ownership. End-of-show lighter segment (Priority: 1/5): Craig Coburn's 'long/short' picks include melodic house music as a long and France's Fifth Republic as a short, offering a humorous close to the discussion.

Key Arguments: Private markets have become more attractive than public markets, allowing companies to avoid scrutiny and often achieve better pricing. The IPO pipeline is weak not because markets are closed, but because the best companies are staying private and weaker companies are the ones forced to list. Private equity faces a valuation gap: many firms bought assets too expensively and prefer to wait rather than mark them to market. Regulatory changes such as MiFID II and broker-research separation reduced small-cap research coverage and damaged deal ecosystems. UK pension reforms shifted money away from equities into bonds, reducing domestic demand for IPOs and public shares. Public markets provide social benefits: transparency, accountability, broader investor access, and better participation in company upside. The U.S. is likely to see a modest IPO recovery in 2025, but Europe and Asia remain structurally weaker due to lack of scale and reduced institutional demand.

Data Points: Global IPO count in 2024: 1,245 deals - Described as the fewest IPOs globally since 2016. U.S. IPO count in 2024: about 200 deals - The U.S. market was weaker than ideal, but not as bad as other regions. Europe IPO count in 2024: about 100 deals - Presented as the worst level in more than a decade. UK IPO count in 2024: 13 deals - Described as a very slow year and far below historical norms. Typical UK IPO count in earlier years: 65 to 100 IPOs per year - Used to show how much activity has fallen. SP 500 returns: 20-plus percent in two consecutive years - Used to underscore the mismatch between strong equity markets and weak IPO issuance. Private assets backlog: over $3 trillion - Amount of assets held in private hands that are not yet returning to public markets. Amazon IPO size: $35 or $36 million - Cited as an example of how small some past IPOs were, and how much upside early public investors could capture. Expected U.S. IPO volume in 2024: around $30 billion - Craig’s estimate for total U.S. IPO proceeds in 2024. Expected U.S. IPO volume in 2025: around $50 billion - Projected increase if markets remain stable and no major crash occurs. Private equity fee structure: 2% plus 20% carry - Used to illustrate how private markets monetize access and exclude ordinary investors.

Pivotal Quotes: "some of the best companies are staying private. And some of the weaker companies in private hands are going public because they don't actually have a private bid." — Craig Coburn: Explains adverse selection in today’s IPO market. "There is a public good to having a robust Public market." — Craig Coburn: Argues that public listings benefit more than just bankers and investors. "You no longer have deals, IPOs, subsidizing broker research." — Craig Coburn: Describes how regulatory changes weakened the research and listings ecosystem.

Implications: If IPO markets stay weak, public investors lose access to growth, companies become less transparent, and capital formation shifts further toward private funds. The episode suggests modest U.S. recovery ahead, but structural reforms may be needed to revive public markets.