Feb 28, 2024
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Conditions to Escape the Cold IPO Market

"This level of ownership transition will provide an unprecedented transfer of wealth [and] a significant opportunity for corporations and private equity to invest," says KPMG.

Where are we now?

  • Economists expect central banks to start cutting interest rates as early as the first half of 2024.
  • Dealmaking is anticipated to accelerate this year, as private equity funds look to deploy capital.
  • 7 in 10 (~69%) SMB’s said they intend to sell to another company or third party within the next three to five years.
  • A survey of small and medium-sized businesses in Canada found that nearly two-thirds (64%) plan to engage in a merger, joint venture, partnership, or acquisition within the next three years.
  • Businesses that are high-quality and capable of sustaining growth are expected to attract valuation premiums.

What is holding us back?

  • Liquidity has tightened as central banks around the world have raised interest rates, making cash and cash equivalents increasingly attractive investments.
  • After coming to a halt in 2022, the IPO market has shown signs of recovery in an irregular pattern.  
  • Volatility in the equity markets had been on a steady rise until the late fall, causing investors to hesitate before engaging in further buying activities.

Where do we go from here?

  • Conditions to escape the cold IPO Market – With rate cuts expected in the first half of 2024, the probability of the IPO window beginning to thaw should steadily increase [1].
  • Corporations to upgrade financial skillsets – As the majority of private SMB’s look to participate in M&A activity, the internal skillsets of the finance team will be pressed to upgrade, focusing on more external financial activities rather than traditional accounting functions.
  • Leveraging technology to boost valuations – Finance will continue to evolve from manual, disparate data sets & spreadsheets to unified systems of valuation, monitoring, and forecasting. Firms that invest in such technologies are likely to see significant ROI.

SOURCES

https://kpmg.com/ca/en/home/media/press-releases/2024/01/dealmaking-to-lift-mergers-acquisitions-in-2024.html

https://www.wsj.com/finance/stocks/the-ipo-market-is- struggling-in-its-first-big-test-of-the-year- 2b06540a

https://www.bloomberg.com/news/newsletters/2024-01- 10/market-uncertainty-now-is-as-extreme- as-it-gets-everything-risk

[1] https://uncipc.org/index.php/publication/is-the-u-s-ipo-market-about-to-thaw-ipc-research-notes/

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