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As the 2024 presidential election approaches, executives leading IPO hopefuls may be wondering:
- How could the outcome affect the plans for going public?
- What will happen to the stock market after the election?
- How can I best prepare for an IPO during this time?
Based on our experience and analysis of IPOs during election years, it’s our view that while the election may dominate the headlines, it shouldn’t be the main driver in the decision to go public.
With a few exceptions, annual IPO volumes reveal a pattern of relative consistency across election and non-election years, though there has been some impact on sector specific activity and IPO timing. In 2013, 2017 and 2021, for example, we saw slight upticks of activity follow elections as political uncertainty settled. This data includes SPAC IPOs, which had a significant impact on the market in recent years —especially 2021 — before activity began to decline substantially about a year ago.
IPO activity dips noticeably in the month of November during election years, suggesting that the election uncertainty leads companies to avoid launching or pricing a transaction.
The dip is even more pronounced during election week — with companies almost completely avoiding a pricing.
Some exceptions seem to arise in sectors sensitive to political discourse. The Healthcare sector, for instance, has shown variability in IPO activity due to political discussions over drug pricing and healthcare policies.
This time it’s different. Well, maybe…
In 2024, unique economic, political and even technological factors could influence IPO sentiment more during this election cycle than in prior years. These include:
- We are continuing to see growing confidence in a potential soft economic landing. Historically, this would be an unexpected development in light of the Federal Reserve’s aggressive rate hikes as well as the presence of deeply inverted yield curves.
- A highly concentrated 2023 equity market rally that saw the S&P 500 grow by 24.8%, significantly influenced by a select group of “magnificent seven” tech stocks. These stocks accounted for 50% of that increase and represented 28% of the total S&P 500 market cap at the end of 2023.
- Recent significant changes to interest rates and the associated impacts on both public and private company valuations and cost of capital.
- Anticipated interest rate changes from the Federal Reserve.
- Changes in consumer behavior in the wake of relatively high inflation and declines in savings and real incomes, despite other promising signals such as a relatively low unemployment rate.
- The potential political impact of new federal appointments and changing government regulation after the election.
- The emergence of AI technology, which is affecting everything from investor interest and valuations to potential regulatory scrutiny.
Despite the complexity of these factors, our advice to aspiring public companies remains consistent: They should focus on their fundamentals and how their IPO timing dovetails with a long-term capital plan. Likewise, prioritizing strong sales and earnings growth, assessing public investor demands and establishing financial statement integrity will all be time well spent for a company that wants to be proactive instead of reactive. In addition, it’s crucial to discuss all the considerations with collaborators that have a deep bench of knowledgeable experts.
Special thanks to Semir Krpo and Shahbaz Rajwani for contributing to this blog.
Path to Public: a webcast series where we discuss the latest capital market trends and IPO readiness considerations.
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