IPO Market Looks for a Spark

As we step into 2025, the IPO market finds itself at a crossroads, seeking a spark to reignite the flames of 2021. The past few years have been a rollercoaster ride, with a remarkable boom in 2021, followed by a sharp downturn in 2022 and 2023, and a slow but steady recovery in 2024. As we look ahead, the IPO market is filled with optimism, driven by several key factors that could lead to a resurgence in activity.



Stock market valuations: The recovery in stock valuations makes a potential issuer's peer set look more attractive and helps align IPO valuations with shareholder expectations. In 2021, the IPO market was boosted by record valuations and highly attractive supply and demand dynamics for capital formation. As we enter 2025, stability in valuations will be more important to the IPO market than continuing to achieve outsized growth rates from here.

Interest rate environment: A more accommodating interest rate environment is poised to fuel the IPO market as lower rates reduce borrowing costs, stimulate investment in new ventures, and reduce the discount rates applied to growth company valuations. In contrast, the IPO boom in 2021 occurred despite an increasing interest rate environment, which led to a dramatic reduction in new issuance activity in subsequent years. EY-Parthenon currently projects a rate cut at every other meeting through the third quarter, for a total of 75 bps of easing in 2025, which could further boost the IPO market.

Economic conditions: Stronger economic conditions and investor conviction are driving optimism for greater IPO activity moving forward. In 2021, the IPO market benefited from a strong economic recovery following the COVID-19 pandemic, which led to record issuance levels. As we enter 2025, a healthy economy, investor confidence, the acceleration of the private equity and venture capital "flywheel," and predictions of a strengthening M&A environment further boost the outlook for IPOs.

Investor sentiment and market volatility: Investor sentiment and market volatility play a significant role in the IPO market's cyclical nature. When investors are optimistic and the market is stable, IPO activity tends to be robust, as seen in 2021. Conversely, when market conditions are uncertain or volatile, as in 2022 and 2023, IPO activity slows down. Companies planning to go public should be aware of these market dynamics and prepare accordingly. Timing the IPO, diversifying revenue streams, building a strong balance sheet, focusing on fundamentals, and engaging with investors can help companies navigate potential market fluctuations and increase the likelihood of a successful IPO.



In conclusion, the IPO market looks for a spark in 2025, driven by a combination of factors that could lead to a resurgence in activity. As we step into the new year, companies should be prepared to capitalize on favorable market conditions and investors should be on the lookout for promising IPOs. With the right ingredients in place, the IPO market could once again ignite and provide opportunities for both companies and investors.