Private equity-backed initial public offerings (IPOs) in the U.S. are on the verge of a comeback. According to a new analysis by data provider PitchBook, last year saw just $8.7 billion in IPO exits from private equity-backed companies in the U.S., a stark contrast to the pre-pandemic average of $45.1 billion. Factors such as high interest rates, macroeconomic uncertainty, and rising geopolitical risks have posed challenges for these companies. However, with U.S. stock markets reaching historic highs and an improved macroeconomic environment, the outlook for exits is becoming more promising.
PitchBook has identified 50 private equity-backed companies preparing for IPOs on U.S. exchanges in the coming year. These companies are of sufficient size for the public market, have recently filed for IPOs or have been preparing for them, and have been on acquisition firms' books for an extended period. According to Tim Clarke, PitchBook's Chief Private Equity Analyst, the current high stock prices create a positive effect, and a recovery is expected by 2025. In fact, the recovery is already underway, with $30.5 billion in private equity-backed IPO exits this year, raising $6 billion.
Several factors influence the likelihood of a private equity-backed company going public. One key factor is the duration the company has been held by the acquisition firm, typically five to seven years. The optimal time for listing is usually between the third and fifth years. Notably, 19 of the companies identified by PitchBook have filed for IPOs in recent years, including UST, backed by Temasek Holdings, and Panera Bread Co., backed by JAB Holding Co.
Other indicators include a large employee base and attractive growth prospects. Clarke emphasizes the importance of size and quality, contrasting with 2021 when many smaller and problematic companies went public. Companies like Inspire Brands Inc., supported by Roark Capital Group, and Allied Universal Security Services LLC, backed by Caisse de dépôt et placement du Québec, are among those with significant hiring plans and potential IPOs next year.
Data shows that U.S. companies have raised $40.6 billion so far this year, surpassing the $25.4 billion raised during the same period last year. David DiPietro, Head of Private Equity at T. Rowe Price, notes an increase in activities surrounding "testing-the-waters" meetings, marking a significant shift from months ago.
