No Match Found
The US economy has shown remarkable resilience over the last year. Consumer spending has held up in the face of higher prices and interest rates, while businesses have trudged through uncertainty without the economy falling into recession. US stock markets are slightly down for the third quarter but the S&P 500 remains in positive territory for the year.
Gains have been fueled by the tech sector, largely due to the strong performance of a small number of artificial intelligence (AI)-related equities. In contrast, US capital raising activities through IPOs and debt remained relatively subdued, indicating a more measured approach from investors. Still, there’s building anticipation about the potential for the IPO window to finally reopen as a few notable companies held public offerings.
US economic growth accelerated in the third quarter on the back of ongoing consumer strength and a recovery in factory activity. However, PwC expects this acceleration will likely be short-lived due to a lagged response to higher borrowing costs, lower savings, and other emerging risks like the auto workers strike and a possible government shutdown. The Federal Reserve is nearing the end of its rate hikes, but a tight labor market and elevated wage pressures mean further rate hikes can’t be ruled out.
While the economy will likely avoid a recession in the near term, PwC expects US growth will likely slow next year. PwC’s baseline expectation is for real GDP growth to top 2% in 2023, but then slip to about 1.5% in 2024.
After six quarters of nearly frozen IPO activity, the third quarter showed modest signs of life marked by a few well-known companies that were able to successfully execute IPOs. Investors remain focused on profitability and cashflow — reenforcing our view that “growth at all costs” companies still face challenges in accessing the market. A semiconductor giant filed for one of the largest tech IPOs in the past 20 years, and two tech unicorns and two biotechs also filed publicly in recent weeks. We could see more IPOs in early 2024 if returns hold up and market conditions continue to ease.
The debt markets have also seen pockets of optimism. Issuance remains confined to higher rated credits and has largely favored secured borrowing. Banks have been successful in selling off most of the debt from the 2022 LBOs that they held onto given the rapid deterioration in market conditions from when the deals were announced to when they closed. This has provided them with a greater ability to underwrite new deals. With more visibility into the end of the Fed’s tightening cycle, the market should see an uptick in M&A and LBO announcements.
“US capital markets are showing promising signs. As interest rates stabilize and valuation gaps tighten, we should start to see more deals coming into the pipeline.”
Note: IPOs with deal values of less than $25 million, best efforts offerings, oil and gas royalty trusts, business development companies, pricing on OTC Bulletin Board and OTC Pink Sheets are excluded from this narrative. Data from SEC filings and third-party databases are as of 9/25/23.
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Capital Markets Advisory Leader, PwC US
Debt Capital Markets Advisory Leader, PwC US
Capital Markets Research Leader, Deals, PwC US