Nasdaq has made a recent update to the Nasdaq Stockholm IPO Pulse, an analytical tool that tracks IPO trends, revealing data through September. This update provides insight into the expected IPO landscape in Stockholm and the U.S. extending into early 2025.
The Nasdaq Stockholm IPO Pulse reached a peak not seen in the past two and a half years in June, suggesting an upward trend in IPO activities. Consistent with this indication, the IPO activities hit a two-year high during the second quarter. Although there was a dip in the IPO Pulse during the third quarter, it rebounded in September, coming close to the high achieved in June. This trend suggests that IPO activities are expected to maintain their upward trajectory, despite experiencing a slowdown in the third quarter due to seasonal variations, such as the summer vacation period in Sweden. Nonetheless, the third quarter still recorded the second-highest number of IPOs in the past six quarters.
Chart 1, accompanying the narrative, illustrates the sustained uptrend in Stockholm’s IPO activity projected into early 2025.
Similarly, the U.S.-focused Nasdaq IPO Pulse experienced a slight decline in September, marking the second consecutive month of decrease. Despite this, it remained just below the three-year high reached in July. IPO activities observed in the third quarter were largely consistent with the high levels seen in the second quarter. A total of 126 operating companies and 34 SPACs undertook IPOs in 2024.
As reflected in Chart 2, U.S. IPO activities are expected to remain robust into the next year, supported by the sustainability of the Nasdaq IPO Pulse.
The recent pivot towards rate cuts by central banks globally, including the U.S. Federal Reserve, heralds a positive development for IPO activities. The Federal Reserve, after maintaining high rates for 14 months, has commenced rate cuts, which are anticipated to enhance IPO activities. Likewise, other central banks, such as Sweden’s Riksbank, the European Central Bank, and the Bank of England, have also taken similar measures.
According to market predictions, U.K. rates are expected to decrease to 3.5% by the end of next year, while Eurozone rates could potentially fall to 1.8% by early 2026. This shift toward lower rates is anticipated to foster a positive environment for IPO activities in major markets worldwide.
Higher rates have been a significant burden for IPO candidates, impacting both valuations and margins. Increased rates raise borrowing costs, adversely affecting future earnings and subsequently valuations, which in turn diminishes the occurrence of IPOs. Furthermore, smaller companies have particularly felt the brunt of high borrowing costs, given that a sizable portion of their debt is subject to floating rates. Research indicates that the interest expense ratio for U.S. small-cap companies doubled as a result of the Federal Reserve’s rate hikes, exceeding 45%, which represents the highest level observed this century outside of recessionary periods.
Chart 4 highlights the detrimental effect higher rates have had, particularly on smaller companies, eroding their margins.
Despite various other supportive factors for IPOs, the increased interest expense due to higher rates challenged companies considering an IPO by deteriorating valuations and straining margins. However, as rates decline, it will potentially become easier for these companies to boost profits and improve microcap valuations. Additionally, the conclusion of the election, which has been a temporary hindrance, may also remove one more barrier to IPO activities.
With these obstacles likely to diminish and both IPO Pulses maintaining their upward trends, the positive momentum in IPO activities observed in the U.S. and Stockholm is anticipated to persist into early 2025.
