US Presidential Election Expected to Temporarily Impact IPO Market in 2024

The upcoming US presidential election scheduled for November is foreseen to have repercussions on the reawakening market for initial public offerings (IPOs), potentially condensing the time frame available this year for companies to go public. According to advisors and investors closely monitoring the IPO landscape, the election on November 5 is likely to cause a pause in the IPO activities during the weeks surrounding the vote. While this hiatus is not anticipated to significantly disrupt the momentum in the IPO domain, it is expected to prompt some IPO candidates to adjust their timing strategies.

Mark Schwartz, the Americas IPO and SPAC advisory leader at Ernst & Young, highlighted the likelihood of a «widening of the vacuum» around the election period, suggesting that some deals might be advanced while others could be postponed to the end of 2024 or into 2025. The decision on whether to accelerate or postpone IPOs will heavily depend on the evolving narrative as the election approaches.

This potential election-year slowdown comes at a time when IPOs have been steadily gaining traction after a prolonged lull in activity. In the current year, companies have raised over $13.7 billion on US exchanges, surpassing the amount raised in the corresponding period in 2023. However, the IPO volume up to the end of April stands at a stark 92% below the remarkable levels seen during the banner year of 2021, as per data compiled by Bloomberg.

It is worth noting that the pace of IPOs has historically slowed down in November during election years, as data analyzed by ICR Capital LLC reveals. Over the past six presidential election cycles, IPOs priced in November have seen a 50% drop-off compared to the average. To compensate for this lull, IPO activity tends to increase in the months leading up to November.

Despite the potential slowdown, recent IPOs have shown promise, with companies like Rubrik Inc., backed by Microsoft Corp., posting gains after exceeding their fundraising goals. Ibotta Inc. and Loar Holdings Inc. have also seen positive market reception, reflecting underlying optimism in the IPO space.

The emerging consensus among experts is that a return to an IPO environment akin to the pre-pandemic era may be more realistic by 2025. This outlook is influenced by factors such as companies adjusting to evolving valuation expectations and investors becoming more amenable to assuming risks.

Francois Chadwick, a partner at KPMG, expressed optimism for the IPO landscape in 2025, citing that the global election uncertainties would have subsided by then, offering better clarity on interest rates. The primary hindrance to IPOs currently lies in a company’s readiness to go public, with many firms focused on solidifying their fundamentals for a successful IPO debut.