ASX poised for more IPOs in 2025 as conditions turn

Looming interest rate cuts along with easing inflation and improved economic conditions will provide companies with greater confidence to undertake initial public offerings, say market watchers, who expect a pickup in activity next year.

Several successful IPOs in recent months – including from current market darling Guzman y Gomez, which has rallied 70 per cent since June – is helping to install greater market confidence.

Guzman y Gomez, which has a $3.86bn market valuation, debuted to much fanfare on the ASX last month with the share price having risen from its IPO price of $22 to $37.31 on Friday.

Jarden head of equity capital markets Millie Horton said that, while 2024 had been weak in terms of IPO volumes, investors had been starved of issuance in recent years, and equity capital markets had shown signs of recent strength.

“Investors are engaged on high-quality opportunities with strong appetite for scale issuers, where there is confidence around market liquidity,” she said.

“The majority of recent deals have traded strongly and above offer price – helping fuel confidence.”

A successful IPO market next year would depend on further stability in rates and inflation. Economists don’t expect the Reserve Bank to cut rates until early 2025, which Ms Horton said would make it easier to raise capital and incentivise listings, particularly in the tech, health and renewable energy sectors.

“There are definite signs of momentum building, with several larger-scale companies in preparation behind the scenes to maintain flexibility to launch an IPO once there’s more clarity around market conditions, interest rates, and inflation,” she said.

Virgin Australia is expected to again test the waters for an IPO next year after plans to sell a 25 per cent stake to Qatar Airways, which DataRoom reported to be about $750m, supporting a $3bn IPO valuation of the carrier.

Bain Capital paid $700m for the airline in 2020, and had planned to relist Virgin last year, but choppy equity markets saw the plan shelved several times.

Ms Horton said companies such as Virgin Australia were watching for the right window, and a few larger-scale successful IPOs early next year could trigger a wave of activity.

“What we typically have seen is that companies that IPO at the start of the reopening of IPO markets typically trade better than those that come at the end of the cycle,” she said.

ASX data shows the total number of listings on the bourse fell in the year to September. EQT capital raising client relations managing director Martin Donnelly said the shrinking number reflected a larger shift in how companies chose to access capital due to rising costs and stricter regulation.

Many companies now see private markets as a more efficient and flexible way to raise capital, allowing them to continue growing and innovating without the challenges of an IPO.

There have been about 25 IPOs on the bourse since January 1, according to analysis by The Australian. Most have been small with a further eight set to list in October, including wool product manufacturer and distributor Merino & Co. It is set to list on October 30 after a $7.5m IPO and will expand its operations across key markets.

Merino & Co CEO Fiona Yue said while IPO sentiment had been murky, the float would support ambitions to be a cultural icon and the poster child for the local wool industry, which accounts for 80 per cent of world’s supply.

“In life and business there’s never a perfect time for anything,” she said.

“To make that ambition happen quicker we need significant investment in branding and marketing, and that’s why we’ve gone for an IPO.

“It will give the capital injection that we need to expand into more markets, attract more talent and additional resources.”

Major IPOs have been few and far between, with Guzman y Gomez raising $335m and Redox, the largest in the post-Covid era, at $402m in June last year.

Since 2019, Dalrymple Bay Infrastructure, GQG Partners and PEXA have been the only $1bn-plus IPOs.

HLB Mann Judd partner Marcus Ohm said decreased IPO activity had been driven by the mining industry “in terms of the number of listings, and in the past few years that’s been lithium and rare earths”.