What key insights have emerged from your discussions at this year's TIMT conference?
Jesse Chasse: We’re moving into a year that won’t be bogged down by uncertainty and that will benefit from a shifting interest rate environment. Following the election, investors and companies are more prone to action and displaying a more ‘risk-on’ sentiment regarding asset classes such as crypto and software. There is growing optimism about a recovery in software and enterprise spending, with investors anticipating sustained momentum beyond this initial tailwind.
Chip Wadsworth: This is our largest conference ever, with over 1,000 attendees. A clearer macro outlook offers significant upside for investors. Looking ahead to 2025, the focus will be on how a more active private market aligns with the public market, which has yet to see a great deal of IPO and follow-on activity. Once this picks up, it should open up some major opportunities.
“Looking ahead to 2025, the focus will be on how a more active private market can align with the public market, which has yet to see a great deal of IPO and follow-on activity.”
Chip Wadsworth, Head, Technology, Media, Telecom Equity Capital Markets
Will we start to see a normalization of the IPO market in 2025?
Jesse Chasse: We should start to see a normalization of the tech IPO market next year, but I don't think we’ll see a lot of the higher profile software IPOs that everyone's been excited about. Many of these businesses still have the ability to wait, whether due to large cash balances, active secondary markets, or their capacity for tender offers. However, in the past three to four weeks, we've gained visibility on eight IPOs for next year—opportunities we didn’t foresee just a month ago.
I expect we’ll see more IPOs among AI infrastructure firms and Fintechs, as well as some software IPOs among cybersecurity and infrastructure companies, which have seen a more stable earnings environment. Overall, there will be a diverse supply for investors to choose from in terms of both sector and market cap in 2025.
Kolz: The IPO calendar, even in tech, has been dominated by large deals. What's been missing is the traditional venture capital-backed IPO.
Wadsworth: The venture community has played a key role in bridging the gap between private market capital raises and what can be achieved in the public markets. The significant valuation difference between the two has kept many companies from going public. As multiples in the software space shift upwards and models improve, this should drive more venture capital-driven IPO activity.
How do you see the debate between growth, profitability, and scale evolving in the IPO market?
Chasse: There’s been a misconception that companies need over a billion dollars in revenue to go public. What investors are really looking for is a substantial float and market cap to ensure liquidity and prevent too much technical overhang, allowing the stock to trade on fundamentals. As deal activity increases, this should help resolve the issue and encourage smaller companies to enter the market.
“There’s been a misconception that companies need over a billion dollars in revenue to go public. What investors are really looking for is a substantial float and market cap to ensure liquidity and prevent too much technical overhang.”
Jesse Chasse, Head of Technology Equity Capital Markets
Wadsworth: The Rule of 40 is really important and is going to be a watch word for folks. Our analysts recently highlighted free cash flow per share as another way to measure profitable growth, and a KPI which public investors are turning to more frequently. That said, the classic growth IPO, that exhibits delayed profitability, is likely here to stay. A ‘risk-on’ mentality is currently dominating the market, with growth assets gaining attention. As more growth assets enter, we’ll see how this trend develops.
Kelsey Bumgardner: There’s a real scarcity of growth companies in the tech public markets. 85% of public software companies today are growing less than 20% and so the IPO market remains a really important avenue for investors to underwrite growth stories that are absent today.
How does M&A drive us in the ECM world?
Kolz: There’s a view that a more relaxed regulatory environment could ease the path to M&A and prompt action from owners who’ve been waiting on the sidelines.
Bumgardner: We’re seeing a consistent desire from investors to support existing companies through M&A or to fund strategic initiatives. Long-only investors are also seeking to be brought over the wall for primary capital raises, where there’s a clear use of proceeds or catalyst. With three acquisition-related wall-crosses on our desk in October alone, we know that the most successful situations have some sort of established pattern recognition with investors, meaning a track record of successfully identifying, financing, and integrating acquisitions. We recently acted as the exclusive financial advisor and sole bookrunner on an equity financing for a SMB software company undergoing a transformation. The transaction saw 100% conversion from the wall-cross process and was upsized, highlighting strong institutional appetite for small-cap growth stories.
“We’re seeing a consistent desire from investors to support existing companies through M&A or to fund strategic initiatives... The most successful situations have some sort of established pattern recognition with investors.”
Kelsey Bumgardner, Vice President, Equity Capital Markets
Wadsworth: Broadly, up until now, M&A has been stuck. However, it looks like things are about to shift. Movement in M&A could potentially benefit the IPO market as well. When you think about how those M&A transactions are going to get financed, there's no doubt the convert market is going to be really important to that. Entities are using convertibles to raise capital and acquire assets.
John Kolz: With overall capital markets volumes, including ECM, up by roughly 50%, convertibles have seen a similar increase. There's certainly more appetite from investors to use convertibles for financing M&A, growth, and other purposes, and this trend is expected to continue.
In the private market, will dual-track approaches continue in 2025?
Bumgardner: More Tech companies were taken private than went public in 2024, but we’re expecting that will change next year. We advised Advent on their $6+ billion take-private of Nuvei. Unsurprisingly, this has sparked many discussions with corporate and private equity clients about the IPO path, leading to more dual-track conversations as boards, management teams, and investors weigh their exit options. DPI has been a real priority for 2024 and that should continue into next year.
How are companies assessing strategic alternatives in today’s market?
Bumgardner: De-risking remains a key focus, with companies turning to private markets for liquidity and engaging with investors well in advance of an IPO—a strategy that has become increasingly common in recent years.
Chasse: Private companies have a much broader spectrum of strategic alternatives they can choose from today. We’re seeing private equity sponsors taking a very creative approach to alternatives, from margin loans to the use of derivatives in order to support their exit out of positions.
Kolz: That’s something that’s very important to our approach at RBC. There's a reason we have our structured equity solutions business, which includes margin loans, call options, variable prepaid forwards and converts, etc. It’s such an important element of how owners and companies think about their positions.
Wadsworth: Over the last few years, we’ve seen sponsors putting derivative structures in place that enhanced their returns. They are looking for creative solutions that can create returns for their LPs prior to a merger or an IPO, and they are seeking more flexibility on monetizing their stakes once an IPO takes place.
