Private Equity Goes Cold On IPOs: We Offer A Better Alternative, Says Canaccord Genuity Manager

The market for initial public offerings has taken a severe knock in the last two years and is unlikely to recover the heights of the record year for new listings seen in 2021.

Matthew Langsford, senior portfolio manager and senior wealth advisor at Canaccord Genuity Wealth Management, says IPOs will recover from the lows seen in 2023, which saw just 154 new listings on the New York Stock Exchange, but not on the scale of the record 1,035 seen in 2021.

“I don’t think we’ll ever see the IPO market come back to where it was before because there has been this change in the landscape where there’s so much money available within the private equity space that companies have a lot of other options to consider,” Langsford tells Benzinga.

“We’ll see the IPO markets heat up again to some extent, but I’m not expecting it to be anywhere near what we’ve seen in the past.”

This, he says, is largely a function of the success of the private equity world and the amount of investment available for placement there.

“The need for immediate liquidity is not as prominent,” he says. “So I think a lot of companies and a lot of investors are comfortable investing in a format that allows for true value generation without being subject to quarterly earnings calls.”

Costs Of Going Public Become Prohibitive

Alongside volatile markets and high interest rates, the costs of being a public company are becoming prohibitive, Langsford says.

“There’s an alternative through the private equity space that offers a better solution for companies and investors.

“They can go public if it makes sense, but at the same time, there’s an ample number of good private equity partners out there that can provide what they need to continue to grow and thrive, but without the hassle and the overhang associated with being a publicly traded security.”

From an investor standpoint, Langsford says, private companies are under less pressure to make short-term decisions to drive quarterly earnings. They spend less time and cost maintaining compliance, and PE partners can take a more hands-on approach to providing guidance and strategy.

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The Challenge Of Finding Good Deals

One challenge that all private equity firms are now dealing with: finding good deals. Leveraged buyouts are becoming more expensive following the market upturn that has lifted valuations of many companies beyond what could be considered a reasonable purchase price.

“It’s all about doing your homework and making sure that you’re finding top quality companies that you can become actively involved with and driving value in those enterprises.”

The days of the generalist private equity fund could be numbered as firms trend towards specializing in particular areas and sectors in which they have built up a notable expertise, Langsford says.

“Digital transformation is an area that we’ve become fond of,” he says.

“This is because you can take a traditional industry or company that hasn’t yet embraced digital transformation, and there’s a lot of scalability and synergies that come from going down that path.”

Growth In Private Investors

Traditionally, the private equity market was the sole realm of a number of institutional investors, sovereign wealth funds and other large players, but in recent years, high net worth retail investors have been getting in the mix as PE funds realize an untapped opportunity to raise funds within the accredited investor space.

“We like the fact that this has become a market that’s accepted not only by institutional investors, but also for high net worth and ultra high net worth retail investors,” Langsford says.

And when it comes to allocation of capital, these investors are looking to diversify out of traditional equity and fixed income markets.

“In general it’s becoming a much more accepted, almost necessary, part of an investment asset allocation policy,” he adds.

“There’s definite trends that are going to shape the industry going forward, namely the end of financial engineering off the back of low interest rates and abundance of capital and more about the value creators within the private equity space and true partners for companies.“

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Matthew Langsford photo courtesy of Canaccord Genuity Wealth Management.