IPOS - MKM sees IPO market normalizing in Q3 as unicorns reach record high

The US IPO market could normalize by the end of the third quarter if the market hits bottom this quarter as the number of privately held "unicorns," or companies valued at least $1B, reaches a record high, according to MKM Partners.

MKM said in a recent note that history has shown the IPO market generally bounces back roughly six to nine months after a market trough. The firm noted that the IPO market rebounded approximately nine months after the nadir of the 2002 dot-com crash and six months following the bottom of the 2008-2009 financial crisis.

The research group said its top IPO candidates for 2023 were Alchemy, Arctic Wolf, Better.com, Checkout.com, Chime, Databricks, DataRobot, Epic Games, Fanatics, Farmers Business Network, goPuff, Grammarly, Instacart, Klaviyo, Reddit, Revolut, ServiceTitan, Stripe, Talkdesk and Tipalti.

The analysts said they believe venture capitalists and private equity investors will be looking to exit certain portfolio companies after hoarding "record levels of dry powder," adding that the number of privately held companies boasting valuations of more than $1B mushroomed to 1,210 worldwide as of December 2022, compared with 950 in 2021.

Chinese unicorns such as TikTok owner ByteDance, Shein, Xiohongshu, Yuanfudao and DJI Innovations could also IPO this year, they said.

MKM also pointed out that more than 400 SPACs were still looking for merger partners. The firm said that while they expect most to elect to return capital to investors, many will seek out targets at lower valuations with profitable track records.

Last year's top SPAC deals were COVA's $3.5B deal with EV tech developer ECARX ( ECX ) and Tiga's $2.1B merger with LGBTQ dating app Grindr ( GRND ).

MKM also believes direct listings could become more mainstream this year, supported by regulatory changes that "point toward a supportive environment for fundraising via direct listings." High profile direct listings over the past three years have included Roblox ( RBLX ), Palantir ( PLTR ) and Coinbase ( COIN ).

After a banner 2021, the US IPO market essentially froze in 2022, with market debuts on Nasdaq and NYSE dropping 78% year-over-year as proceeds plunged a stunning 94%.

Despite the challenging environment, two IPO managed to raise more than $1B in 2022, AIG spinout Corebridge ( CRBG ) and private equity firm TPG ( TPG ), while Intel spinout Mobileye ( MBLY ) raised $990M.

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