IPOs are bought, not sold

I am often asked if the IPO market will re-open in 2025. Who knows? There are many variables at play.

2024 was expected to be a strong IPO year, but it wasn’t.

We finish the year with European and US indices at all-time highs and low market volatility (the median VIX was below 15% in 2024). Both factors (high markets and low risk aversion) should have convinced private owners to pursue IPOs.

But IPO volumes in 2024 remain down 46% and 51% compared to the 10-year average in Europe and the US, respectively.

Private markets continue to grow and attract more institutional flows. They can offer better alternatives to public markets for asset owners, with easier execution and more certainty regarding valuation and exit timing.

Nonetheless, public markets remain the best route for asset owners to keep upside exposure and extract premium valuations for strongly performing assets—while partially monetizing their portfolios and managing cash returns to their own LPs (with a lot of focus on DPI among PE funds).

The days of “IPOs as an exit” are indeed challenged, and this year we have seen as many as 7 IPOs pulled in Europe (circa one out of five). Deal sizes were simply too large, or valuation expectations were too high. This is particularly true for PE-owned assets with the wrong capital structure and low growth profiles.

However, there are successful PE-owned IPOs like Galderma. They learned the hard way by pulling their first IPO attempt, but they fixed their capital structure with a pre-IPO round. Galderma is a growth story, and the equity market appreciates that. EQT managed to execute two rounds of sell-down after the IPO in the same year, at a much higher price (>40%+). Leaving value on the table at the IPO is one of the best investments you can make, with an IRR greater than 50% in this case. Well done Magnus Tornling !

Then there’s one of our favorite recent IPO, Norconsult, which recently celebrated its one-year anniversary. Shares are up 133%. They entered the market when IPO appetite was low, had to reduce the deal size due to lack of demand, and the stock traded down in the first week. However, the company eventually delivered results above its plans and expectations. Norconsult is 100% owned by its employees, with a long-term vision and proper skin in the game by the selling shareholders.

Alignment of interests with IPO investors remains our best indicator of the chance of success for an IPO. The same goes for privatizations and state-owned assets.

On that note, we see a trend of CEOs and CFOs leaving shortly after IPOs, often within two years and sometimes even within 12 months (e.g., RENK Group). Management packages are designed for exits, not for post-IPO value creation. This needs to be addressed.

Again, IPOs have to be bought, not sold.

Looking forward to 2025 and more IPO stories. Listen there: