US Capital Markets Midyear Record: IPO Revival and an Imaginative Turn Skadden, Arps, Slate, Meagher & Flom LLP

important issues

• Companies looking to pivot strategically in 2023 are well-positioned to profit from a revived US IPO market in 2024.
• Despite persistently rising interest rates, debt markets remain healthy in 2024, with a significant selection of refinancing and new capital raising transactions.
• The M&A market, with its increasing number of common three-way partnership formations, has contributed to a complementary capital markets process.
• Non-public capital and alternative non-traditional or industry-specific financing structures remain notable options for many corporations to consider as they review backup strategies for raising capital.

As evidence of the flexibility and ability of US capital markets to adapt, IPOs, debt markets, and mergers and acquisitions (and associated financings) have shown significant growth over 2023. The time target in 2024 indicates that this year could well be the beginning. Despite a favorable turn, volatility is likely to continue as the market continues to wait and react to international and financial factors.

The year started with some difficult conditions for the capital markets:

• Interest rates, capital prices and inflation remained high.
• Issues related to the status of the US and alternative mega economies.
• Ongoing geopolitical confusion.
• Big focus of attention on geostrategic boxes similar to size and stability projects, synthetic perception (AI) and subsequent elections.

(See our December 2023 article “How companies are adapting to volatile capital markets and planning ahead.”)

However, after the US presidential election, IPOs and financing prospects are generally expected to remain hidden. As issuers and buyers envision the rough picture of the normal market process, exit preparation and strategic plans become increasingly important for those looking to profit from hidden market windows and options.

Definitive Indicators in the United States IPO Marketplace

The US IPO market has shown promising signs of emerging from the IPO drought of 2023. As of May 31, 2024, 76 IPOs raised $15 billion in proceeds, while 68 IPOs raised $9 billion in the same period in 2023. Also, 71 companies have filed or submitted confidential IPO registration details till May 31, 2024.

Exercising options within the first 5 months of 2024 is modestly impactful compared to the same period in 2023, with projected proceeds exceeding $35 billion by the end of 2024 if the IPO tide continues. The 2024 numbers are not projected to reach 2020 or 2021 IPO levels, although these are probably the surest indicators for IPO expansion from 2022 onwards.¹

Some of the most anticipated IPOs scheduled to expire so far in 2024 are:

• Viking Holdings, parent of Viking Cruises (largest US IPO so far this year, $1.5 billion).
• Reddit (the first IPO for a major social media company since Pinterest in 2019, and which gave Reddit subscribers the opportunity to participate in the IPO).
• Astera Labs (an information center connectivity chip corporate for cloud and AI infrastructure).
• Rubrik (a Microsoft backed technological advertising and marketing company that makes Generative AI possible).

Of the IPOs lined up this year, broadly:

• 20% were in the technology sector, including AI-related services.
• 23% were in the fitness services industry.
• 20% were in the financial industry (composed of companies and institutions that provide financial services and products to businesses and retail consumers).

Issuers, shareholders and buyers appear to have found a way to align on valuations and adapt to – and dominate – increasingly demanding economic and geopolitical conditions. Of the 76 IPOs as of May 31, 2024, about 49% were still trading above their IPO prices.

Companies looking to advance people leadership need to carefully observe markets and international opportunities, and remain versatile while anticipating the appropriate time and technology. By working with their advisors on exit preparation, they may be able to get out for a short period of time while the market is rising.

Loan providing work will increase

US debt markets open to growth in 2024 compared to 2023. Within the first 5 months of 2024, investment-grade and high-yield bond issuances totaled approximately $795 billion, an increase of 7.6% over the first 5 months. Of 2023.

Proceeds from high-yield bond issuance nearly doubled ($255 billion) in the first 5 months of this year compared to the same period in 2023 ($129 billion). In January 2024, the high-yield bond market had its busiest appearance since November 2021, with $31 billion issued.

Proceeds from investment-grade bond issuances within the first 5 months of 2024 ($540 billion) were somewhat lower than the same period in 2023 ($614 billion). Alternatively, Q1 2024 recorded the easiest quarterly degree of M&A bond process ($79 billion) since Q1 2021.

As of May 31, 2024, the average coupon for investment-grade bond options due 2024 was 5.24%, which is comparable to the average 5.25% for full-year 2023.

Meanwhile, the average coupon for high-yield bond options due 2024 to May 31 was 7.44% – significantly lower than the average 8.42% for the full year 2023. The average term size of prime-yield bonds introduced in 2024 is 6.42 years, a negligible increase from 6.16 years in 2023.

Approximately $2 trillion in international corporate debt is due to mature by the end of 2024, and approximately 31% of all corporate debt (including bonds, loans and revolving credit facilities from financial and non-financial company issuers) falls within the then 12 . 18 months. Of U.S. investment-grade bond options so far, about 29% were for refinancing purposes, making U.S. high-yield bond options, by far, 78% were for refinancing purposes.

Companies typically begin considering refinancing at least one to two years before the loan reaches maturity, so the refinancing process may be significant in the remainder of 2024.

Non-Public Capital and the Persistent Properties of Alternatives

Even with improved processes in the traditional equity and debt markets, non-public capital and alternative options remain notable capital market options for corporations. According to PitchBook, global non-public capital under control is projected to grow from $13.1 trillion by June 30, 2023, to $20 trillion by 2028. This includes all categories including private equity and project capital, non-public debt. , real property and real property.

Among alternative features, investor interest in non-public equity markets increased:

• fast growing business sector (For example., AI, blank energy, fitness service technology and e-commerce logistics sectors, allowing buyers to diversify their portfolios and reduce their exposure to broader market threats).
• Environmental, social and governance (ESG) concerns.
• Emerging markets, similar to Latin America and Asia.

This year, direct loan transactions are also increasing rapidly. Through May 31, 2024, US companies raised more than $61.5 billion in direct loan transactions where the amount was identified, compared to $17.2 billion over the same period in 2023.

Companies can use non-public capital systems, whether separate or in conjunction with traditional structures, to achieve specific financing objectives and capital formation goals. (See our March 2024 article “Private capital remains an attractive option for many companies.”)

The provision of private capital has also supported the expansion of creative financing structures, including joint ventures and project-focused financing. Those arrangements may be particularly useful for infrastructure (including virtual infrastructure) and legacy projects that experience high start-up costs and may result in non-public investment.

Come up with examples:

• Intel recently announced a three-way partnership with Apollo World for an $11 billion investment in Intel’s fabrication plant in Ireland.
• Occidental Petroleum’s contemporary three-way partnership with Berkshire Hathaway Power to recover lithium in California.

Eye on 2024

Luck in 2024 will be about being ready to take advantage of opportunities and benefit from market windows.

Companies considering an IPO, providing a traditional loan and/or securing financing through non-public capital should work with advisors to strengthen their preparation for the public and private markets. This may include preparing, comparing, and updating quarterly financial statements and policies that may affect stakeholders’ interests.

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1 Information for this article comes from Bloomberg, PwC, Renaissance Capital, Refinitiv, CreditSights, Keep Research and S&P World.

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