2024 Takeaways and 2025 Outlooks - Transcript

 

Healthcare ECM Perspectives 

00;00;00;00 - 00;00;26;14

This is John Hoffman, Co-Head of the Healthcare ECM team. 2024 was a dynamic year. As is the case with many years within the biotech public equity markets. The year started with much optimism around a broad potential rerating in the biotech sector, on the back of what was anticipated to be an interest rate easing cycle that would further take into account some of the late cycle M&A dynamics that we'd seen in the back half of 2023.

00;00;26;16 - 00;00;56;06

Obviously, that didn't transpire. We've been in a higher for longer interest rate environment, which has had a strong impact on companies that operate in duration sensitive sectors, much like biotech does. That said, the performance of the sector was not completely devoid of very significant positive dynamics. In a year where ECM volumes are up more than 25%, biotech still managed to retain its top position, with more than 15% of overall deal volume and north of $50 billion of capital raised.

00;00;56;08 - 00;01;22;08

I think that just demonstrates that durability adapts and maturity to the sector that, frankly, did not exist a decade ago. Further, when you look a bit deeper into the outperformance of certain companies within the broad XBI or biotech listed public equities, there's some very notable takeaways for those companies that were outperformers. For those that did outperform, I have a list that we've pulled together of north of 50 companies that produce returns in excess of 100% on that list.

00;01;22;11 - 00;01;37;28

More than half the companies command market caps north of $1 billion. But importantly, half of the companies have market caps that are less than $1 billion. You've got a very wide-ranging number of therapeutic areas that constitute the companies on that list, whether it's in I&I or oncology.

00;01;38;05 - 00;01;59;08

many of the different sub verticals within oncology. There is a great diversity of therapeutic areas that are driving investor interest and have produced meaningful results in the public markets. On the back of clinical data, but also importantly, another observation on the list is beyond just clinical data success, the drivers of outperformance for those outperforming companies is it's fairly varied.

00;01;59;11 - 00;02;21;21

You've had a number where either actual or perceived M&A were the drivers of the outperformance, several where regulatory clarity with the FDA drove a significant portion of their outperformance. And then further real NPV positive value creation through clinical launches or commercial launches for some of the companies that have recently come to market after having their therapies approved by the FDA,

00;02;21;24 - 00;02;29;28

Again, driving some of that outperformance. So, when I reflect on those companies that outperformed what was a very challenging backdrop for most companies,

00;02;29;28 - 00;02;37;02

there is actually a wide range of potential drivers of that outperformance that investors have come to appreciate in this calendar year.

00;02;37;08 - 00;02;56;28

We did see an increase in IPO activity to some extent, though still well below historical norms around the typical 30 to 40 biotech IPOs that constitute a quote unquote, normal biotech IPO market. There were 18 IPOs in the year, raising north of $3 billion of capital. And the aftermarket performance was decidedly mixed.

00;02;56;28 - 00;03;17;23

Beyond just the aftermarket performance of those transactions, I think some of the key takeaways around elevated pre money valuations compared to historical standards, elevated deal sizes compared historical standards and other certain dynamics being an important input into the broad assessment of the biotech equity capital markets and how high functioning they can be.

00;03;17;23 - 00;03;29;18

So what does that all mean for 2025? I think in a beta challenge environment, like we've been in with the XBI in the broad biotech space this year, we'll have investors begin to refocus their attention on alpha generation.

00;03;29;21 - 00;03;47;27

That means holding stocks to clinical catalysts. That means engaging further with management teams around expectations for those clinical catalysts. And from a portfolio perspective, keeping their investor dollars directed on likely fewer companies than some of the expansive portfolio construction methodologies that we had seen previously.

00;03;47;27 - 00;03;55;08

That's very much a positive backdrop on the investor-corporate dialogue side of the equation, where I think it leans much more fundamental in nature

00;03;55;12 - 00;04;30;21

From the ECM side of things, I think that means we may end up seeing a year where there's fewer transactions overall, but deal volumes actually track in line to what we've been seeing in this previous year and in years prior. So while we'll maybe see potential fewer transactions with deal sizes expanding, I think that'll encourage companies to think much more creatively around their execution constructs for some of the equity capital markets transactions that they'll be pursuing, whether it's risk capital commitments from some of their banking partners, or whether it's coupling some of their capital markets activities with inventory products that we've seen take shape, either on the convertible side in the royalty

00;04;30;21 - 00;04;50;19

market or on the traditional debt financing side, being very expansive and how they approach the capital markets to solve what'll be large capital needs on the back of some of these important clinical catalysts I think will be very much front and center in our conversations with corporates throughout the course of the year. In addition to thinking expansively around creative capital market solutions, where you're

00;04;50;19 - 00;04;56;07

putting together different parts of the overall option set that corporates have to solve their capital needs,

00;04;56;10 - 00;05;20;28

I also think we'll see companies really debate how to actively manage their treasury, whether it's existing positions that they hold, perhaps in strategic partners of theirs or other types of monetizable assets that they have, thinking through how to optimize the overall portfolio they have within their treasury to really optimize our liquidity position and get full access to cash on the balance sheet to prosecute their R&D plans and go forward basis.

00;05;20;28 - 00;05;31;20

And then finally, I think we'll see a continued return of the IPO market. Our backlog is suggestive of that. We know of a number of companies that will be testing the market leading this year through their investor engagement activities.

00;05;32;10 - 00;06;07;02

I'm Jason Levitz, Healthcare Equity Capital Markets. 2024 was a very challenging year for healthcare. The sector has underperformed the market by just under 25%, and healthcare's weighting in the S&P 500 now sits at a 24-year low. Most of the underperformance happened in the fourth quarter after a disappointing third quarter earnings season. Uncertainty around the U.S. elections and concerns about the incoming healthcare administration, I’ll focus on non-biotech healthcare equity issuance, which was actually flat year-over-year despite the market backdrop, we saw several successful healthcare services IPOs this year.

00;06;07;10 - 00;06;28;22

The financial profile of these businesses varied, but most were at least high single digit revenue growers with several hundred million of EBITDA and right size balance sheets. RBC was a bookrunner on four of the five $200 million plus IPOs in the services vertical this year. In the fourth quarter, we saw the first Medtech IPO in over two years, and the shadow pipeline is building for early ‘25.

00;06;29;07 - 00;06;43;03

Overall, we do expect better sector performance next year due to an attractive valuation backdrop, expectations for a more lenient FTC and continued sector innovation in the form of new care paradigms, software, tools, diagnostics and devices.

 

Industrials ECM Perspectives

00;00;00;00 - 00;00;24;06

Hi, this is Mike Ventura, Head of U.S. Equity Capital Markets with a 2024 year in review and 2025 outlook for industrials ECM. I want to start by contextualizing the setup heading into year end. The S&P 500 is slated to return 27% this year. This is the first time in the 21st century that the S&P will have back-to-back 20% plus annual returns.

00;00;24;09 - 00;00;50;07

The S&P industrials subsector was up 20% on the year. The best performance for the sector in five years and second best in a decade. It should come as no surprise, then, that industrials accounted for about a quarter of all street-wide equity issuance, more than three times the historical average, even excluding Boeing's mega financing. Industrial equity issuance was two times its historical average.

00;00;50;09 - 00;01;16;22

Drilling down on that issuance, industrial IPOs were the best performing across sectors, returning in excess of 30% on average in their first 30 days post IPO. Industrial follow-ons were largely driven by financial sponsors. Roughly half of all industrial follow-on issuance was secondary, and about three quarters of that issuance came in the form of block trades. What does this all mean for the year ahead?

00;01;16;24 - 00;01;52;22

While the market backdrop begs the question if not now, when? Private companies, as well as their sponsors and founders find themselves staring down an equity market where valuations have rerated, making IPOs more attractive, particularly in light of 2024’s aftermarket performance. They're also more scaled and have been private for significantly longer than expected with pressure on sponsors in particular to return capital to LPs. As such, we expect to see a continuation of this year's active industrials IPO calendar, specifically in the back half of the year.

00;01;52;24 - 00;02;19;24

From a subsector perspective, we expect issuance to be driven by defense and space tech, as well as large cap industrial services or industrial tech companies. Follow-on issuance will be dominated by sponsor monetization, as there is still $17 billion of secondary overhang and industrials. Putting all of this together and barring any significant macro disruption, 2025 should be another exceptional year for industrials ECM activity.

 

Communications Infrastructure ECM Perspectives

00;00;00;00 - 00;00;27;18

Well. Hello, everybody. Chip Wadsworth here. I'm responsible for RBC's Technology, Media, Telecom, ECM Business. We've been asked to reflect on 2024 and provide some thoughts around 2025. So, my comments are going to focus on the communications infrastructure sector. Here at RBC, we have the number one equities team in the space, so it's no surprise that we spent a lot of time in this vibrant, large, and global ecosystem.

00;00;27;20 - 00;00;52;09

So, 2024 was a busy year across the board. Private businesses were quite active, especially with the sponsor community. Public companies tapped the equity and debt markets as they brought their CapEx budgets forward. And the M&A environment was very healthy. For us, we were very much in the thick of things. On the private side, our European team advised GIC on its $1.5 billion investment into Vantage.

00;00;52;11 - 00;01;06;20

On the public side, we executed an $800 million entitlement offer for Australian listed NEXTDC. And in the M&A market, we advised Blackstone on its $16 billion acquisition of AirTrunk. So, 2024 was quite positive

00;01;06;20 - 00;01;20;09

many ways for our clients and for the firm. Looking forward towards 2025 and beyond, we see three important themes playing out. First, the private markets will continue to be where most of the financing actually takes place.

00;01;20;12 - 00;01;42;12

There's been a lot of available capital from World class investors privately, and we've seen many companies able to raise money at strong valuations. We see that trend continuing as we move into the new year. That said, our second theme is that there is going to be a select few companies, both here in the US and abroad, which will test the IPO market.

00;01;42;14 - 00;02;11;00

The pent-up demand from public investors for communications infrastructure plays is significant. The private companies which are evaluating the public markets will be rewarded for moving first. Finally, we anticipate that the convert product will be an increasingly important financing tool for public companies in the sector. With rates elevated and the M&A market poised to heat up, a convertible can be used as both a refinancing tool and as a mechanism to build an M&A war chest.

00;02;11;01 - 00;02;21;12

We see that playing out in 2025 and beyond. Hopefully you find our perspective helpful. Please reach out with questions, ideas and opportunities. Thanks again.

 

Technology ECM Perspectives

00;00;00;00 - 00;00;27;18

Hello and happy New Year. This is Jesse Chasse, Head of Tech Equity Capital markets at RBC. While 2024 saw the most active year in the tech equity capital market since ’21, volumes broadly remain muted relative to historical averages. This is despite headline equity indices seeing all-time highs, up between 20 and 30% on the year. Digging in a bit deeper, though, tells a more nuanced story.

00;00;27;20 - 00;00;59;08

While broader indices showed meaningful strength, gains remain concentrated amongst the handful of Large Cap Tech and AI levered stocks. Median 2024 performance across all Tech stocks for example, was up just 2%. The tech sector saw 9 IPOs, relative to just 2 and 3 in 2022 and 2023, respectively. Activity, though, remained muted relative to longer term averages of roughly 30 Tech IPOs per year.

00;00;59;11 - 00;01;25;06

A diverse mix of subsectors represented with IPOs across Software, Internet, Services and Semis. All but 3 of 2024’s IPOs finished the year in the green, with an average aftermarket performance of 97%. The final IPO of the year, ServiceTitan, was a standout, with demand exuberance reminiscent of what we saw in 2021 and aftermarket performance to seemingly justify it.

00;01;25;19 - 00;01;59;17

As the final IPO of the year, this outcome has given both investors and issuers confidence in a healthy backdrop for 2025. RBC remained active in 2024 as a bookrunner on IPOs for both Waystar and Ingram Micro. Secondary market activity was healthier with convertible issuance the clear, bright spot as volumes were well north of historical averages. While Refinancings dominated activity, the return of the 0% coupon and a flurry of activity from crypto and AI related issuers also garnered headlines.

00;01;59;20 - 00;02;31;03

RBC was a participant in this wave of issuance, acting as bookrunner on the $600 million Convert for Core Scientific in December. Common equity secondary market activity remained dominated by Financial Sponsor monetizations, with block trades as the execution format of choice. Primary issuance remained muted, though we did see a number of transactions for a defined use of proceeds. One such example was the RBC bookrun follow-on for Thryv, to fund its acquisition of Keap.

00;02;31;05 - 00;02;43;05

This was RBC's first ever sole bookrun equity offering in tech. We appreciate all of our clients support in 2024 and look forward to continued success together in 2025.

 

Real Estate ECM Perspectives

00;00;00;00 - 00;00;25;07

Hi, this is JT Deignan, from RBC Equity Capital Markets. I'm responsible for overseeing our real estate business inside of equity capital markets. It's been interesting year, but following really five years of underperformance, the U.S. REIT market has found renewed interest as an asset class again. Despite persistent interest rate volatility, the sector had positive returns as acquisition volumes have meaningfully increased,

00;00;25;07 - 00;00;59;19

M&A resurfaced across various subsectors. We've had a favorable supply demand backdrop, which I do believe will continue in 2025, and we've had more clarity around issuance cost of capital, both on the debt and equity side, obviously very important as they look to grow further. And we've had really, really solid earnings growth almost across the real estate sector in its entirety, while higher for longer has dampened recent stock performance as we close out 2024, we enjoyed a meaningful uptick in REIT equity issuance this year.

00;00;59;19 - 00;01;22;13

Volumes were up 170% in 24 versus 2023, with greater subsector diversification, something that we haven't seen in quite some time. Despite the challenging and somewhat unclear rate environment, the fundamental tailwinds in real estate that drove performance in 2024 will remain intact in 2025.

00;01;22;15 - 00;01;46;23

We fully anticipate investor sentiment to improve further as we get more clarity around interest rates. So, as we get that clarity around interest rates, we believe you're going to see the return of the generalist, long only asset manager to the sector. Equally important, fund flows to the REIT dedicated managers will turn positive, as this asset class is still very under owned.

00;01;46;25 - 00;02;16;02

So, as we march into 2025, our expectations for equity capital market activity is high. IPO volumes will be higher. Follow on capital will surpass 2024 volumes for the already publicly traded rates that continue to creatively grow their asset bases. The sectors that I think are going to be most active, pretty consistent with what we saw in 2024, healthcare, data centers, the net lease sector, retail, both shopping centers and malls.

00;02;16;03 - 00;02;35;00

We're also going to see robust activity out of the residential mortgage REIT space in 2025. So, while REITs aren't immune to equity market volatility, we believe the sector is in its early stages of recovery and see further upside that's going to translate into a robust capital markets in 2025.

 

Financial Institutions ECM Perspectives

00;00;00;00 - 00;00;25;09

JT Deignan here from RBC Equity Capital Markets. I am responsible for covering the FIG sector, financial services, all things financial. And this has been a very interesting year in the sector broadly. Two major themes I would highlight. One is we've seen a tremendous amount of activity in a regional bank sector, which we haven't had been quite some time.

00;00;25;11 - 00;00;54;01

And it's been interesting in that there's really been two camps of capital raises. There's been the defensive capital raises, which you could define as offensive, where it's really focusing on improving balance sheets from a regulatory standpoint. And then we've seen regional M&A banking transactions that we haven't really seen and people, investors included, have been waiting, hoping for for quite some time.

00;00;54;03 - 00;01;24;00

There's been a resurgence in demand for those equity transactions. But we've also seen a movement from investors into the secondary market. So we've seen volumes of activity and trading pick up in the marketplace. And that's only spilled over to the equity capital market side. I believe there's been 22 equity raises so far around the bank sector. I think that will probably continue in 2025.

00;01;24;00 - 00;01;58;19

I do believe that will see a continuation of larger regional banks purchasing smaller banks, as there's a race to collect high quality deposits and certain banks are underperforming from a regulatory capital ratio standpoint. So, it's a little bit TBD. Some of this has been driven by some challenges in the real estate market. So CRE exposures at the local level, development etc. has been a drag on certain balance sheets of the regional banking community.

00;01;58;19 - 00;02;25;15

So, I expect that we'll see both this offensive and defensive capital market play out over the next year. The other theme that's really important to hit on, and I do think will continue in 2025 and beyond, is around alternatives. Alternative asset managers, private credit really, if you think about the private side or private equity and you think about the alternative asset managers, the lines are truly blurring.

00;02;25;15 - 00;02;51;26

They've become competitors to the larger banks but also partners. And we'll continue to see that too, as they sit and look to deploy their balance sheets to the growing and required need from smaller companies, middle market companies, you know, it's only going to continue as we move forward. Their capital is much more flexible than certain banks because of the regulatory framework that we have to contend with.

00;02;52;03 - 00;03;17;28

But again, we're working in partnership with these folks. But if you consider some of the deal activity that's been very public, HPS, which was recently announced that Blackrock was going to be buying that platform for a whopping $12 billion valuation, some of these platforms, and this has been publicly disclosed, their intention was to perhaps go public. Before we can even get them to the public markets,

00;03;17;29 - 00;03;43;15

we've got M&A transactions taking place. I only think that's going to continue. I think that the investor community would love to see more alternative asset managers come to the public domain, particularly when you compare and contrast their businesses relative to the traditional asset managers that just don't have the same product offerings. They don't have the same type of embedded upside in their returns.

00;03;43;21 - 00;04;14;20

And I do think we will have at some point in 2025, some alternative credit managers come to the public domain, and we'll have full and robust support from equity investors. We’ll continue to watch that. That's a theme that's going to play out. And next year we'll also see what we saw this year in the early part. IPO activity in the specialty finance segment of the financial services sector. BDCs, business development corporations,

00;04;14;23 - 00;04;48;28

these platforms continue to support the middle part of the sandwich. When you think about lending to corporate America and small and mid-sized businesses, those platforms are only growing in size and scale. So, we will see some activity around the BDC sector continue. Insurance, there is a healthy pipeline. There has been and continues to be of insurance related platforms that will come to the public markets, particularly if you look at some of the last wave of companies that have gone to the public markets via IPO.

00;04;49;00 - 00;05;21;28

In the insurance sector, the performance has been tremendous, and these have been small capital raises varying from $150 million of new equity to $500 million. We have a few opportunities that will be presented to the public market in the early part of 2025. And again, given the relative outperformance of these newly minted public companies, we've got a, I think, a pretty built in support system from prospective equity investors who want to see more differentiated platforms come to the marketplace.

00;05;21;28 - 00;05;50;27

So, if you look at the broader FIG sector and where there's been outperformance in 2025, if you look at the PNC insurance segment, if you look at the alternative asset managers, if you look at some of the business development companies, and certainly the regional banks have had a nice run up until recently. I think those themes and I think those areas of strength will spill over to 2025.

00;05;50;27 - 00;05;56;16

And I also think that there will be corresponding equity capital market activity in those segments of the FIG space.

 

Energy and Power, Utilities, & Infrastructure ECM Perspectives

00;00;00;00 - 00;00;33;29

My name is Young Kim and I'm the Head of Energy and PU&I ECM for RBC. Thematically, in 2024, we saw several items. One, the rise of AI and data centers as a major energy demand driver, positively affecting both the energy and PU &I sectors. Two President Biden's permitting pause on LNG infrastructure. Three. China's embargo on exports of rare earth metals in the U.S., a supply chain dominated by China affecting the renewable energy sector, which is heavily reliant on these key imports.

00;00;34;02 - 00;01;00;25

Four, U.S. solar growth, faced a slowdown despite five years of rapid growth on the back of resources, supply chain, and labor limitations. Five, a decline of ESG as a driver of capital allocation amongst U.S. oil companies, as the impacts of growing war in Europe caused energy companies to pay more attention of matters of energy security. And finally, record-setting U.S. production of oil and gas despite falling rig counts.

00;01;00;27 - 00;01;28;02

From an energy perspective, we saw a 100% increase in equity related activity to nearly $20 billion of capital formation, which was mainly led by registered block activity, and the biggest declines coming in from the market to follow on the market of 44% and IPOs down 31%. 76% of that equity activity were secondary positions or secondary exits, mainly from private equity sponsors in the energy space.

00;01;28;04 - 00;01;50;01

From a PU&I ECM perspective, we saw a decline in equity activity of approximately 30% overall to nearly $17 billion of capital formation. 88% of equity activity was primary proceeds. Equity-linked product continued to be utilized in the utility sector, as we saw nearly $11 billion of capital formation through this product.

00;01;50;23 - 00;02;08;06

From an RBC perspective, the ECM team has been in active dialog with a lot of corporate and private equity clients. Noteworthy wise, we were involved in a $1.7 billion equity monetization of Occidental Petroleum, which was a block risk trade sold by Lime Rock and their partners at CrownRock.

00;02;08;06 - 00;02;30;23

And on the smaller side, and only because it was a unique risk profile with a higher level of difficulty, we helped in bringing an IPO of a Pre-revenue gas company from Australia, public in the U.S. markets for Tamborine Resources. From a PU&I perspective, there was a tremendous amount of ECM activity and RBC participated more than 50% of that trading this year.

00;02;31;10 - 00;02;54;01

For the coming year, we expect, believe it or not, several IPOs in the energy sector to come to market, while others are considering the public exit strategy as a viable action. Especially on the heels of the proliferation of sentiment around gas and valuations pushing higher. The AI data center demand pools and not slowing. We're seeing continued collaboration across industries, including with our utility partners.

00;02;54;04 - 00;03;16;11

We'll continue to see secondary exit opportunities by private equity and nontraditional shareholders as they take advantage of stock prices, reflecting positive valuation growth. And in the same breath, there are opportunities in the utility space as they continue to rerate and announce anticipated capital expenditure increases at fourth quarter earnings. The need for primary equity proceeds will be greater than before.

00;03;16;12 - 00;03;40;08

Generally depending on stock prices, the ATM product has been well utilized and has been a great source of capital formation in a discreet and ninja-like manner. Alongside these products, the use of contracts is well known and great optionality for our PU&I clients. And I do suspect that many of our clients will do primary equity deals or in some cases, utilize the equity-linked product in addition to ATMs and others.

00;03;40;10 - 00;03;46;17

I'm expecting a breakout year for both sectors and look forward to speaking to many of you in the new year. Thank you.

 

Equity-Linked Capital Markets Perspectives

00;00;00;00 - 00;00;22;26

Hi, this is Suvir Thadani. I'm a Managing Director within RBC's Equity Capital Markets group focused on convertibles and equity-linked securities. I wanted to give you a quick overview of what we've been seeing through the course of 2024, and the prediction for 2025. ‘24 was a great year in the convertible market. We saw almost $90 billion of capital raised.

00;00;23;01 - 00;00;55;10

That's the third most active year in the last ten years. Most of the issuance has come from companies looking to refinance debt. Although we've started to see more issuers increase using proceeds for share repurchases. We've also seen mandatory securities come back. So mandatory securities are just equity surrogates. In fact, we saw one of the largest transactions over the past ten years in the Boeing transaction that raised almost $6 billion of mandatory convertible securities.

00;00;55;12 - 00;01;21;24

RBC was a bookrunner on that transaction. We've seen a lot of investment grade issuers come to market. 15 transactions, specifically raising almost $20 billion of capital. These issuers are still looking at ways to reduce their interest expense and their cost of capital. The sector mix is interesting as well. It's not just utilities. We've also seen real estate, technology, and financial services companies come to market.

00;01;21;28 - 00;01;47;21

Finally another theme we've seen post-election are bitcoin and crypto related issuers coming to market. There have been about $13 billion of this paper within the convert market, including a transaction for Core Scientific, which was RBC's first foray into the space as an active bookrunner. Technology still remains the predominant sector for the ninth year in a row, with over 50% of volume within the convert market.

00;01;47;24 - 00;02;19;19

We've started to see more zero-coupon bonds. Ten transactions this year had no coupon and about 50+% have utilized either a capped call or call spread, a theme that we've seen year over year pretty consistently. I'd say the outlook for 2025 remains very similar. I'm a little optimistic that we can get to about $100 billion of issuance within the convertible bond market, including mandatories. I think, as rates stay, potentially higher for longer,

00;02;19;21 - 00;02;43;10

The savings that issuers are going to receive on convertible bonds is meaningful and attractive. And I think as we start to see more issuers within the strong high yield space, as well as investment grade issuers come back to market, we can see a path to $100, $100 plus billion dollars of issuance, which we have not seen since 2020.

00;02;43;12 - 00;03;06;04

I also think that we're going to continue to see mandatory convertibles come to market as issuers look to raise equity capital, but keep a premium. Certain sectors, like the utility space, which have an increased and growing amount of equity needs over the next couple of years, are rolling forward their plans and issuing both equity and mandatories in larger size.

00;03;06;06 - 00;03;31;13

Finally, what I'd say is the average deal size of the convert market this past year has grown from $200, $300 million years ago to $800 million per transaction. So the convert depth of market seems to be growing, and it wouldn't surprise me to see more billion dollar deals in 2025. So with that, that's the prediction that I have for the next 12 months.

 

Consumer & Retail ECM Perspectives

00;00;00;00 - 00;00;22;10

Hi, I'm Matt Rein, Head of Consumer and Retail Equity Capital Markets here at RBC. In 2024, it was no surprise that the overall health of the consumer was top of mind for companies and investors. Factors like inflation, higher interest rates, and increased credit card debt levels all had an impact on the consumer, forcing them to be quite selective in where they spent their discretionary dollars.

00;00;22;10 - 00;00;47;04

In the public markets, we saw a major bifurcation of winners and losers as it relates to stock price performance. We clearly saw the lower income consumer under significantly more pressure, resulting in a very challenging environment for the value oriented, lower price point stocks across retail and restaurants. Growth businesses targeting the higher income consumer proved resilient and were rewarded with significant stock price performance.

00;00;47;06 - 00;01;13;28

The consumers with an ability to spend were focused on high quality, better for you purchase decisions. We saw companies like Sprouts, Sweetgreen, Cava, On Running and Primo Brands among the best performing stocks in the sector, significantly outperforming the S&P 500. While 2024 broadly saw a recovery in IPO issuance and trading performance, issuance in consumer retail was muted, with just two IPOs pricing.

00;01;14;00 - 00;01;40;17

Given the macro uncertainty around rates, the election, and the health of the consumer., many potential IPO issuers chose to sit on the sidelines this year and focus their timelines on 2025. The consumer retail IPO backlog continues to grow, with many high quality, high growth industry leaders monitoring the market. For those that choose to access the market in 2025, we anticipate a strong environment and robust investor interest.

00;01;40;26 - 00;01;54;09

It was an active year for follow-ons in the consumer retail sector, with over $23.5 billion of issuance. Interesting to note that 95% of that issuance were secondary sales by sponsors and corporates.

00;01;54;09 - 00;02;11;02

For 2025, we anticipate a meaningful rebound in IPO issuance, and with that continued strength in the follow-on market. The set up going into 2025 is quite strong and based on what we're hearing from our clients, we're expecting an uptick in activity in the year ahead.

00;02;11;04 - 00;02;19;07

While the debates on rates, tariffs and the health of the consumer will drive the narrative to start the year, the market for issuance will be open.