Healthcare ECM Perspectives
2024 Takeaways:
In 2024 the healthcare sector struggled, underperforming the market by just under 25%, amid election uncertainties and generally weak earnings, particularly in the third quarter. Despite facing those headwinds and persistently high interest rates, the sector showed resilience with increased deal volumes and north of $50bn of capital raised. The biotech sector’s growth was fueled by M&A, FDA regulatory clarity and major clinical and commercial milestones. A significant number of companies delivered over 100% returns and grew to substantial (over $1bn) market capitalizations. While biotech IPO activity remained historically light, several services companies with strong historical performance and robust financials completed successful IPOs - RBC was a bookrunner on four of the five $200mm plus IPOs in the vertical this year.
2025 Outlook:
The 2025 outlook for the healthcare sector portends a period of positive transformation and growth. Investment returns should be driven by attractive valuations, a relaxed regulatory stance from the FTC, and a wave of innovation in treatment methods, care paradigms and medical technology. Biotech equity capital markets may witness fewer but larger deals, necessitating creative execution strategies. Biotech firms are poised to enhance their liquidity for research and development by optimizing their treasury management. Additionally, we expect a broad revival in the IPO market, fueled by a pipeline of new entrants and a renewed optimism for innovation in key therapeutic areas.
Industrials ECM Perspectives
2024 Takeaways:
In 2024, the S&P 500 will return roughly 27%, the first time in the 21st century that the index will have back-to-back 20%+ annual returns.
The Industrials sector was up 20% on the year, its best performance in five years and second-best in a decade.
Equity raises in the space were particularly robust - Industrials made up a quarter of all street-wide equity issuance, more than 3X the sector’s historical average.
Importantly, 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, a trend we expect to continue in 2025.
2025 Outlook:
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 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.
From a sub-sector perspective, we expect issuance to be driven by Defense and Space Tech, as well as Large Cap Industrial Services or Industrial Tech companies. As mentioned above, Follow-on issuance will be dominated by sponsor monetizations, as there is still $17 billion of secondary overhang in industrials. Putting all of this together and barring any significant macro disruption, 2025 should be another active year for Industrials ECM issuance.
Communications Infrastructure ECM Perspectives
2024 Takeaways:
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. On the private side, RBC advised GIC on its $1.5 billion investment into Vantage. 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.
2025 Outlook:
Looking to 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. 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 in the U.S. and abroad, which will test the IPO market. 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. We see that playing out in 2025 and beyond.
Technology ECM Perspectives
2024 Takeaways:
Despite broader equity indices hitting record highs in 2024 with increases of 20-30%, the tech sector's gains remained relatively concentrated. Large Cap Tech and AI-focused stocks were the primary drivers of the market's strength, with the median performance of all tech stocks rising by a modest 2%.
The tech equity capital market saw its most active year since 2021, though volumes remained below longer-term averages. The sector witnessed nine IPOs, a rise from previous years but still short of the 30 IPO yearly average. ServiceTitan's IPO stood out for its high demand and strong aftermarket performance. Secondary market activity in 2024 was more vibrant, with Convertible issuance standing out and surpassing historical averages. Refinancing was the dominant activity, but the resurgence of 0% coupons and a flurry of crypto and AI-related issuances also made headlines. In the common equity secondary market, Financial Sponsor monetizations led the way, primarily through block trades. Although primary issuance was limited, there were noteworthy transactions with specific use of proceeds, such as RBC's sole bookrun follow-on for Thryv to fund its acquisition of Keap, marking RBC's first-ever sole bookrun equity offering in the tech sector.
2025 Outlook:
The biggest question for tech stocks as we enter 2025 is the ability for ongoing and broadening strength in the face of a potentially sticky inflation and interest rate environment. Continued progress around the broader demand environment and the potential for an earnings upgrade cycle could bolster stocks in the face of these potential headwinds. In the new issue market, we expect another year of increased appetite for IPOs and secondaries across Tech coupled with more robust supply catalyzed by a healthy valuation environment and better business model predictability across Tech. For the first time since 2021, we expect a healthy balance of both demand and supply to catalyze a breakout year of Tech Equity Capital Markets activity.
Real Estate ECM Perspectives
2024 Takeaways:
2024 was an interesting year for real estate. After five years of underperformance, the U.S. REIT market found renewed interest as an asset class. Despite fluctuations in interest rates, the sector saw positive returns, bolstered by increased acquisition volumes, M&A activity across various sub-sectors and further clarity around asset pricing in the private markets. A favorable supply-demand environment is expected to persist, and there is now more clarity around issuers cost of capital, for both debt and equity side. Many real estate sub-sectors delivered strong earnings growth this year, and despite a volatile rate backdrop REIT equity issuance meaningfully rose. Equity issuance volumes soared by 170% in 2024 vs. 2023, with greater sub-sector diversification and investor participation.
2025 Outlook:
The fundamental drivers behind 2024’s strong performance are projected to remain in-tact moving into 2025. Looking ahead, we fully anticipate investor sentiment to improve further as interest rates normalize. From an ECM perspective, IPO volumes will increase, and follow-on capital is anticipated to exceed the levels seen in 2024. Key sectors poised to drive real estate activity include healthcare, data centers, net lease, retail, and residential mortgage REITs. The market is considered to be in an early recovery phase, suggesting more room for growth. This potential for further improvement is expected to drive a strong wave of capital markets activity throughout 2025.
Financial Institutions ECM Perspectives
2024 Takeaways:
This has been a very interesting year in the sector broadly, highlighted by two major themes. The regional bank sector was the most active for quite sometime with over 22 equity capital raises. Investors have flocked to sector, supporting issuers help meet regulatory capital requirements or fund the long awaited consolidation in the space. Trading volumes in the secondary market outpaced 2023 as investors increased exposure to bank sector.
The other dominant theme was around alternative asset managers and private credit. Activity for both public and private platforms reached record levels from both a fundraising and investment perspective. We saw one of that largest M&A transaction announced with Blackrock purchasing HPS at a $12b valuation. Long rumored to go public via IPO, HPS dominant presence in the alternative asset manager, private credit arena positioned them well for either an IPO or strategic sale.
2025 Outlook:
Looking ahead to 2025, the financial sector is poised to maintain its momentum, especially within the specialty finance segment, such as Business Development Corporations (BDCs). When you think about lending to corporate America and small and mid-sized businesses, those platforms are only growing in size and scale. We expect the larger credit platforms to continue funding their growth by bringing certain verticals to the public markets. There continues to be a healthy pipeline of insurance related platforms preparing for debut IPOs. The performance of the last class of insurance IPOs has been strong, further strengthening investor demand and pricing expectations for the next round of entrants. We also anticipate the activity witnessed in the bank sector in 2024 will roll in 2025 with more emphasis on offensive capital raises.
Energy and Power, Utilities, & Infrastructure ECM Perspective
2024 Takeaways:
2024 saw a significant increase in energy demand from AI and data centers, which positively impacted the energy and PU&I sectors. However, the industry faced challenges such as President Biden's pause on LNG infrastructure permitting and China's embargo on rare earth metal exports to the U.S., disrupting the renewable energy supply chain. The U.S. solar industry experienced a slowdown after five years of rapid growth due to resource, supply chain, and labor constraints. ESG's influence on capital allocation among U.S. oil companies declined as the growing conflict in Europe shifted focus to energy security. Despite these challenges, the U.S. achieved record oil and gas production with fewer rigs. Equity-related activity in the energy sector doubled to nearly $20 billion of capital formation, with a significant portion coming from secondary exits by private equity sponsors. PU&I saw a 30% decline in equity activity (nearly $17 billion of capital formation), with the majority of activity coming from primary proceeds and continued use of equity-linked products.
2025 Outlook:
Looking ahead to 2025, we anticipate a strong year for the energy sector with several IPOs expected to enter the market, driven by positive sentiment around gas and increasing valuations. The demand from AI data centers is projected to remain robust, with ongoing cross-industry collaboration. Secondary exit opportunities are likely to arise as private equity and non-traditional shareholders take advantage of stock prices, reflecting positive valuation growth. The utility sector is expected to announce capital expenditure increases, leading to a greater need for primary equity proceeds whether in common equity, equity linked or hybrid form. The ATM product will continue to be a discreet and effective means of capital formation, while “Forward” contracts will offer optionality for PU&I clients. This should lead to a breakout year for both Energy and PU&I sectors.
Equity-Linked Capital Markets Perspectives
2024 Takeaways:
In 2024, the convertible market experienced a robust year, raising nearly $90 billion in capital and marking it as the third most active year in the past decade. Companies frequently issued securities to refinance existing debt and increasingly to fund share repurchases. Notably, Boeing's $6 billion transaction revitalized the interest in mandatory convertible securities. RBC played a significant role as a bookrunner in this deal. 2024 also saw a significant number 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, across a broad mix of sectors.
Additionally, post-election there has been a pickup in activity for bitcoin and crypto 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.
Zero coupon bond issuances were on the rise, often paired with capped calls or call spreads.
2025 Outlook:
Looking ahead to 2025, the sentiment is positive. We are optimistic that the convertible bond market could potentially reach $100 billion in issuances, including mandatories. As rates stay potentially higher for longer. the savings that issuers are going to receive on convertible bonds is meaningful and attractive. 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+ million dollars of issuance, which we have not seen since 2020. Mandatory convertibles are expected to remain a favored choice for companies seeking to raise equity capital at a premium. Sectors with significant equity requirements, such as utilities, are likely to issue both equity and mandatory convertibles in substantial amounts. Finally, the trend of increasing average deal size of the convert market suggests a maturing market that may witness more transactions exceeding $1 billion dollars in 2025.
Consumer & Retail ECM Perspectives
2024 Takeaways:
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. 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.
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. 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.
2025 Outlook:
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. 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.
