Where Does the IPO Market Go in 2025?

The private equity (PE) market will likely drive IPO volumes higher than 2024, but the strength of the PE market could cap the size of deals brought to the market. It's an interesting dichotomy. S&P Global Market Intelligence published a report indicating the value of PE exits fell to a 5-year low last year – about $392 billion in value – and IPOs only accounted for about 11% of those exits.

The average holding period for PE investments decreased from 6.2 years in 2023 to 6.1 years in 2024 but remains higher than the 10-year average, so there's a fair amount of investments getting ready to be divested and exited. Last year, S&P Global Market Intelligence’s Quantamental Research group analyzed earnings transcripts for major private equity firms using natural language processing, and there was a noticeable uptick in the mentions of IPO exits over the past year for the first time in several years.

These factors point to increased PE exits by IPOs this year if conditions remain favorable. However, firms like Databricks, which just reached a $62 billion valuation after recently raising $10 billion in the largest venture round in history, have proven that you can still access significant amounts of capital via the private markets. An IPO may not be as necessary as in the past for some of these large raises.

Assessing the US IPO Pipeline

Activity in the US IPO market started off as a trickle, but a flurry of activity in the last week of January brought the YTD total to $3.6 billion. The market was processing a bit of policy uncertainty with the new administration and were waiting for the dust to settle before finalizing deals. A lot of the administration’s new policies are pro-growth, potentially unwinding some regulations that are barriers for certain industries and sectors.

Volume for 2024 was about the same as 2023, but deal performance was spectacular. If you were to invest in every single US IPO share issued last year, your price would have increased about 38.4% by the end of the year after weighing everything by the total value raised at issuance. If you were to buy the equivalent amount of S&P 500 market value for each day those IPOs were priced, you'd be up a little bit more than 10%. All in all, the 2024 vintage posted a very strong performance in the market.

The weighted average equity price performance of U.S. IPOs by sector shows that every sector was higher on average by day 50 post-issuance, with information technology being the highest at 30.7%. In comparison, IPOs from the real estate sector averaged an only 4.3% increase on price on day 50.

Information technology IPOs increased $3.04 billion in total net market value during the year, which is an 86% increase in price. The health care sector decreased $104 million in total market value in the year, which is a 1.4% decrease in price.

The health care sector did issue 14 IPOs that increased a total of $1.4 billion in market value with a price return of 44.3%. It's also worth noting that currently in the S&P 500, information technology and health care are the only sectors that have higher PE valuations compared to the end of 2020. Waystar, the only health care technology IPO from 2024, had a substantial price return of 70.7% at year-end. Health care technology could be one of the subsectors with greater issuance this year, at least in the US. The new administration could accelerate approval of some new technologies entering the market, leading to greater upside compared to prior years.

Deal Specifics: Size, Region & Follow-on’s

The $500 million-$1 billion deal size cohort was the best performer with a 99.7% weighted average increase in IPO price at year-end. On the other end of the spectrum, the $50 million-$100 million cohort was the worst performer with a weighted average price decrease of about 31.5%. Reddit's IPO, which landed in the $500 million-$1 billion cohort, generated a 380% increase in price that propped up the communication services sector. Deals from Astera Labs and Rubrik greatly benefitted the information technology sector.

Looking overseas briefly, the average float 6 months after issuance for U.S. and European IPO shares based on the IPO pricing quarter indicates that since Q3 2021, the average equity free float for U.S. IPOs has been higher for every issuing quarter, except Q4 2024.

A total of 12 IPOs that raised about $20 million or more during the IPO period in 2023 went back to the markets in 2024 to raise additional capital and secondary offerings. About 25% of the issuers were able to raise capital despite a decline in stock price since the IPO, with half the companies raising more capital in the secondary than their actual IPO. The energy sector only posted five IPOs raising a total of $313 million in 2024. However, the energy sector raised over $14.4 billion across 30 follow-on equity offerings in 2024.