After more than a year-long economic drought in 2022 to 2023, the IPO market has started to see signs of life with the high-profile IPOs of Arm and Instacart toward the end of the year. Will there be another rush of IPOs to market in 2024 as interest rates could potentially decline and a U.S. Presidential Election follows in November?
Digital Journal spoke with Dean Quiambao, Partner with US Top 20 auditing and consulting firm, Armanino to discuss what he sees ahead for the IPO market this year.
Digital Journal: What is the current landscape for the IPO market globally?
Dean Quiambao: We’re seeing there’s not a major rush to IPOs in global markets. For example, the Chinese markets are having trouble in terms of construction challenges and related debt concerns in their economy. Huge headwinds in global stock markets have crushed the IPO market. It’s not like you’re seeing people say we can’t go IPO in America, so we’ll go to China or other markets. It’s the same issues all around the world. It’s because of the organizational headwinds – Volatility, Uncertainty, Complexity, and Ambiguity (VUCA). These are global now, not just limited to the U.S.
DJ: What lessons have been learned over the past year?
Quiambao: The top lessons over the past year are that unit economics and operating efficiency matter. That is the name of the game. Companies want access to capital, whether its public or private, to invigorate their growth efforts. To make that a reality, great unit economics are a must. This is common with every CFO in every industry, an intentional effort on managing strong unit economics.
DJ: Does the 2024 U.S. general election have any impact on the IPO landscape?
Quiambao: The US general election is important in the sense that the US Federal Reserve does not want to influence the outcome of the election. The central bank wants to solely focus on monetary policy. It just so happens this year, that the Fed has signaled rate cuts for 2024. And it’ll be interesting to see how those align with the general election because that could start happening in the second quarter this year. We all know the general election is in November. The Fed does not want to get involved but there could be an alignment there, it just had to be said out loud. There has never been a U.S. President reelected in a recessionary year since William McKinley in 1900.
DJ: What are the technological challenges impacting IPOs?
Quiambao: Upfront, we have to say that artificial intelligence is having an impact on the IPO market. Every organization that is accessing public markets is weaving stories, either on how AI is part of their growth future, and how AI is going to help them increase their enterprise value over the next several years, or how AI is affecting their operations and their own unit economics.
DJ: When you talk to executive management teams that are thinking about going public, what are their biggest concerns?
Quiambao: Management is concerned with when the IPO window is going to open. Specifically, what is the investor sentiment around the window. With interest rates being so high, it’s been a challenging environment. So executives’ biggest concerns are how is that potentially going to change? And then are we ready to take advantage of it? Do we have the unit economics that the market would be interested in? They are concerned about the financial story that they are telling, is it a strong enough and compelling message that organizations are going to want to invest in our future. The real opportunity of every company is not just going public, but maximizing enterprise value as a successful public company. That means putting the right people in place. It means having the right unit economics, it means investing in the right technologies to be as successful as possible.
DJ: What are likely some of the biggest IPOs in 2024?
Quiambao: Stripe is on everyone’s radar and there’s a whole host of companies that investors are looking at this year. Many companies are sitting on the sidelines eagerly waiting, and Armanino as a consulting firm is talking to lots of them. When these companies go public, everyone is wanting to see how they will perform. We had this situation happen last year in the fourth quarter with Instacart and Arm. There is a whole host of people that crossing their fingers and hoping this kicks off a strong IPO run.
DJ: Investors soured on SPACs in the past couple of years, do you think that companies will start using SPACs again to go public?
Quiambao: If what we’re hearing in the marketplace is any indication, then companies are definitely exploring SPACs. The caveat is, I think companies learned their lesson last time. Again, it does boil down to intentional unit economics. Companies want to show great numbers with strong financial stability to build upon. I think in the past, there were a lot of organizations that went public that maybe their numbers weren’t as strong or as secure or sound. Last time, when we had 200 companies go public by SPAC. How many of those were really viable? Now executives are saying I really want to be a viable company. But yes, we are hearing lots of lots of SPACs being formed and looking and trying to try to be ready when the market opens up.
