IPOs and mergers could rebound next year when roughly 1,200 companies are expected to run out of money, according to executives at the AlphaMarket Growth Summit.
The public offerings of Arm Holdings, Instacart and Klaviyo were expected to deliver a big boost to the slumbering IPO market in September. The trio did deliver solid first days, but those gains didn’t last. The stocks of each company have dropped in the aftermarket. Instacart is down nearly 19% from its $30 IPO price, while Arm traded below its $51 offer price and Klaviyo ended Thursday at its $30 price. Then there was the dismal debut of Birkenstock, the German sandal company, which went public last week. Birkenstock has yet to trade above its $46 IPO price, ending Thursday at $37.26.
Birkenstock “was the nail in the coffin for growth IPOs for the balance of the year,” one executive at the conference said. About 170 execs, including venture capital, limited partners, and startups, descended on the Yale Club for the AlphaMarket Summit Wednesday.
There will be IPOs for the rest of 2023 but more in value oriented industries like insurance or financials, predicts Jon Redmond, a portfolio manager at Discovery Capital Management, who spoke on the crossover panel that I moderated. Redmond said he is “very bullish” on IPOs and M&A in 2024, when the Federal Reserve will, at some point, start to cut rates.
One reason companies go public, outside of the prestige factor, is that it helps them raise capital. Many cash-strapped businesses haven’t been able to list their shares since IPOs have largely been on hold since early 2022. So far this year, 300 private companies have gone bankrupt, Redmond said.
“According to our models, there’s 1200 private companies right now that by the end of 2024 will run out of cash,” Redmond said during the summit.
IPOs are one option this group could use to fill their coffers, Redmond said. Other alternatives include getting new loans, using their revolvers, cutting costs, raising equity, or M&A, he said.
This group will “now be incentivized to sort of get the market going again sometime in 2024,” he said.
Mergers are expected to explode next year, executives on the panel said. M&A has slowed in 2023; the number of global M&A transactions dropped nearly 20% as of Oct. 16, according to Dealogic. “Listen, a lot of people raised a lot of money in 2021 and are reluctant to take their medicine in this market,” said Brian Sunshine, head of equity capital markets at Hudson Bay Capital Management, who also spoke on the panel. “As those sort of cash piles will dwindle in the first half of ‘24, they’ll be faced with a challenge of what to do. I think that will be the catalyst for M&A to reemerge.”
Giving Back
Olympus Partners sold two companies in the past month that have generated $1.1 billion in cash returns for investors, according to a person familiar with the situation. Olympus agreed to sell a majority of AmSpec Parent, a provider of testing, inspection, and certification services, to TPG Rise Climate, an Oct. 11 press release said. A week before, CFS Brands scooped up The Foodware Group, a provider of supplies to the food service industry, from Olympus, according to an Oct. 3 press release. The two deals were valued at $2 billion; AmSpec totaled more than $1.2 billion while Foodware was $635 million, the person said. Olympus has returned $3.1 billion to investors in the past two years, they said. Olympus is a middle market firm that invests in several different industries including healthcare, consumer products, financial services and industrial.
See you tomorrow,
Luisa Beltran
Twitter: @LuisaRBeltran
Email: luisa.beltran@fortune.com
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Joe Abrams curated the deals section of today’s newsletter.
VENTURE DEALS
- Hayden AI, a San Francisco-based developer of AI-powered platform that monitors traffic law enforcement, raised $53 million in Series B funding from Drawdown Fund.
- Agnikul, a Chennai, India-based developer of space vehicles, raised $26.7 million in Series B funding from Celesta Capital, Rocketship.vc, and Artha Select Fund.
- Globacap, a London, U.K.-based capital and private markets platform, raised $21 million in Series B funding from Moore Strategic Ventures, Cboe Global Markets, and others.
- Sidebar, a San Diego, Calif.-based platform that places professionals in small networking groups, raised $13.6 million in seed funding from Steve Vassallo, Elizabeth Weil, Evan Sharp, Tim Kendall, Alex Schultz, and others.
- iink Payments, a Tampa, Fla.-based platform for property insurance claim payouts, raised $12 million in Series A funding. Headline led the round and was joined by Motley Fool Ventures, Chartline Capital Partners, Silver Circle Ventures, and others.
- Imbue, a San Francisco-based A.I. research lab, raised $12 million in additional Series B funding ($212 million in total) from Eric Schmidt and the Amazon Alexa Fund.
- Statement, a Tel Aviv, Israel-based platform designed for financial teams to aggregate data, forecast cash flow, and automate tasks, raised $12 million in seed funding. Glilot Capital Partners led the round and was joined by Citi, Mensch Capital Partners, Titan Capital, and Operator Partners.
- Warmly, a San Francisco-based program that tracks website visitors to assess their intent to purchase a product, raised $11 million in Series A funding from Felicis, NFX, Zoom, F-Prime Capital, Maven Ventures, and others.
- Flanks, a Barcelona, Spain-based platform that automates wealth management processes, raised $8 million in Series A funding. Earlybird Venture Capital led the round and was joined by JME Ventures, 4Founders Capital, and others.
- Beluga, a San Francisco-based crypto investment platform, raised $4 million in seed funding. Fin Capital led the round and was joined by Anagram, UDHC, Dispersion Capital, Aptos Labs, 2 Punks Capital, Borderless Capital, and others.
- Harvest Thermal, a Kensington, Calif.-based manufacturer of thermal batteries for heat pumps, raised $4 million in new funding. Earth Foundry led the round and was joined by MUUS Climate Partners, Starshot Capital, and Portfolia.
PRIVATE EQUITY
- Consello Capital acquired a majority stake in ProSearch, a Los Angeles, Calif-based tech and information support platform for legal teams. Financial terms were not disclosed.
- Environmental Systems Group, backed by Bernhard Capital, acquired ELOS Environmental, a Hammond, La.-based provider of environmental consulting services. Financial terms were not disclosed.
- JPA Health, a portfolio company of Great Point Partners, acquired True North Solutions, a Cambridge, Mass.-based consulting firm for biotech and pharmaceutical companies. Financial terms were not disclosed.
- Lovell Minnick Partners acquired a majority stake in ACU-Serve, an Akron, Ohio-based billing and collection service for post-acute, home-based health care providers. FInancial terms were not disclosed.
- Minus Global, backed by Kensington Capital, acquired Future Waste, an Ontario, Canada-based food and liquid waste management company. Financial terms were not disclosed.
EXITS
- I Squared Capital agreed to acquire Arriva Group, a Sunderland, U.K.-based operator of transportation services across Europe, from Deutsche Bahn AG. Financial terms were not disclosed.
FUNDS + FUNDS OF FUNDS
- KKR, a New York City-based private equity firm, raised $3 billion for its third technology fund.
PEOPLE
- Ellie Wheeler and Will Szczerbiak are reportedly leaving Greycroft, a New York City-based venture capital firm, because of disagreements over its new A.I. strategy, according to Axios.
- TPG, a Fort Worth, Texas-based private equity firm, hired Aaron Matto as a partner. Formerly, he was with True Wind Capital.
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