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In Mizuho | Greenhill’s Beyond The Obvious podcast channel, we uncover the value that others miss.
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Welcome to another episode of Mizuho Markets Mindset.
00:00:21:22 - 00:00:26:09
I'm here with my colleague, Rich Soto, who covers
the TMT space for Mizuho's ECM effort.
00:00:26:20 - 00:00:31:21
So Rich, when we think about the IPO market year-to-date, we've seen north of $20 billion of issuance.
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We are clearly heading towards surpassing
last year's $30ish billion of issuance.
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And importantly, we've seen the
performance of the IPO class of 2025
00:00:43:01 - 00:00:48:09
be up 40%+ year-to-date relative to
the S&P at almost 7.5% year-to-date.
00:00:49:02 - 00:00:54:07
What do you think is happening in the TMT IPO
world right now that's causing investors to be so excited?
00:00:54:11 - 00:00:57:18
And what do you think is driving TMT valuation overall?
00:00:58:03 - 00:01:02:03
So we've seen very resilient equity markets,
in particular in the TMT space,
00:01:02:03 - 00:01:08:22
especially anybody who has AI tailwinds to them, and certain other subsectors such as crypto have really outperformed,
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which has driven a lot of the pipeline
that we're seeing into year-end
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and those that have already been executed earlier this year.
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What we're seeing over the next couple of quarters is,
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overall, a lot of the transactions that
didn't get done over the last couple of years,
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companies have gotten together, they've organized,
they've cleaned out their capital structures,
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and they've come out better companies.
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And those are the ones that we're seeing
execute over the next couple of quarters.
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And those have gotten done already this year.
00:01:34:14 - 00:01:39:00
And Rich, when you think about private market valuations,
we went through a window where
00:01:39:00 - 00:01:43:11
companies were staying private for longer,
people were questioning valuation because
00:01:43:11 - 00:01:49:00
there were a lot of valuation resets relative to
where people did private rounds in 2021 and 2022.
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How have VCs and private equity
firms started looking at valuation
00:01:53:05 - 00:01:56:21
and thinking about it in the context of taking
some of these portfolio companies public?
00:01:57:10 - 00:02:01:15
I think first of all, there's no negative
connotation towards the down run.
00:02:01:19 - 00:02:07:00
We've seen Reddit and others come out
and do IPOs below their last private round
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and do very well in the public markets.
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I think the other thing is a lot of the best companies have grown into those 2020 and 2021 valuations.
00:02:15:03 - 00:02:16:13
So those data points around
00:02:16:13 - 00:02:21:14
where you got valued in 2020 and 2021 for the best companies has not really been an issue.
00:02:21:22 - 00:02:26:21
What we have seen is for some of the companies
that probably overstretched in 2020 and 2021,
00:02:26:21 - 00:02:33:08
those are unlikely to come out if they have not
grown into those valuations, if they're way below.
00:02:33:08 - 00:02:38:11
I think what we're seeing there is a much more
active M&A market taking those companies out.
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Got it.
00:02:38:23 - 00:02:44:06
So when you think about post-Labor Day here,
we're coming up on the end of the summer,
00:02:44:06 - 00:02:47:23
when you think about activity post-Labor Day,
what are you seeing in the TMT space
00:02:47:23 - 00:02:51:22
and what are your expectations in terms of the
kinds of companies that are going to come out
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in post-Labor Day through the end of the year?
00:02:54:10 - 00:02:58:08
We're seeing a very broad subset of
companies coming out, but in particular,
00:02:58:08 - 00:03:02:21
we see anything with an AI tailwind
is top of mind for investors.
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Anything in the crypto and broader fintech space,
00:03:06:02 - 00:03:10:06
we see a lot of activity coming out in September,
October and through year-end.
00:03:10:11 - 00:03:16:18
I think cybersecurity and infrastructure software is the
other sort of major area where we see a lot of activity
00:03:16:18 - 00:03:18:20
heading into year-end and early 2026.
00:03:19:13 - 00:03:23:13
So Josh, maybe talking a little bit away from the TMT space,
00:03:23:13 - 00:03:28:07
what are you seeing in some of the subsectors
that you cover like industrials and consumer?
00:03:28:14 - 00:03:29:00
Yeah.
00:03:29:00 - 00:03:34:22
Look, I think in the industrial space, we've seen
defense companies pick up issuance.
00:03:34:22 - 00:03:40:20
We saw three IPOs earlier this year and with the current administration and the commitment to spending in that space,
00:03:40:20 - 00:03:45:02
see a ton of activity right now in
defense technology companies,
00:03:45:02 - 00:03:48:22
a lot of startups driving high valuations through private raises
00:03:48:22 - 00:03:53:01
that will need a lot of capital and will not necessarily
have full access to the debt market.
00:03:53:01 - 00:03:59:22
So we expect that to be a space that's
very hot from an industrials IPO standpoint.
00:04:00:04 - 00:04:04:10
And in addition to that, we're starting to see some sponsor activity amongst the industrials companies.
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There are sponsors that have been sitting on
portfolio companies for three, four or five years.
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We obviously did not have an IPO
window open the last several years.
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And now that we do have a window and multiples
are attractive, we're seeing those sponsors
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think about taking those companies
public in the next 12 to 18 months.
00:04:19:19 - 00:04:23:22
So I think it's going to be a very busy year the
rest of the year from an industrial standpoint.
00:04:24:01 - 00:04:26:19
We saw a company file confidentially today.
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We're working on a couple of transactions.
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So would expect that space to be busy.
00:04:30:23 - 00:04:36:08
On the consumer side, I think that's an area
that it will come probably more like 2026.
00:04:36:08 - 00:04:39:03
There may be a deal or two that
happens toward the end of this year.
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We had a client of ours file confidentially
a couple of weeks ago.
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But again, a lot of those portfolio
companies are held by sponsors
00:04:46:12 - 00:04:50:09
who have been a little slower than
the VCs to bring companies public.
00:04:50:16 - 00:04:55:02
I do think also because there's usually
a growth element in these consumer IPOs,
00:04:55:02 - 00:05:00:18
that's the sector that's usually the last sector
to come to market when the IPO market reopens.
00:05:00:18 - 00:05:06:10
So we expect it maybe not to be as fast
as the recovery in the TMT IPO market,
00:05:06:10 - 00:05:10:20
but certainly see a lot of activity toward
the end of this year and heading into 2026.
00:05:11:05 - 00:05:12:23
So you mentioned sponsors and rates.
00:05:12:23 - 00:05:19:22
How do you see the sponsor and rates dilemma that we've seen over the last couple of quarters play out with the Fed
00:05:19:22 - 00:05:22:23
and the expectation for lower rates
over the next couple of quarters?
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It feels like we've been talking about Fed cuts for a long time, but it does feel like they're finally upon us.
00:05:28:05 - 00:05:34:04
And I think at this point, the reality is sponsors are
concerned with their ability to raise new funds
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and need to get liquidity in their portfolio.
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So we're starting to see the sponsor M&A market pick up.
00:05:38:18 - 00:05:45:07
And usually when the sponsor M&A market is busier,
we see the IPO market follow very quickly there behind.
00:05:45:07 - 00:05:49:07
And we've had a couple of sponsor deals,
IPOs a couple of weeks ago,
00:05:49:07 - 00:05:55:01
which were not necessarily growth stories,
but were deleveraging stories that I think the market
00:05:55:01 - 00:05:57:09
was not necessarily super excited about.
00:05:57:11 - 00:06:01:12
But I do think that there are a lot
more growth-oriented, exciting stories,
00:06:01:12 - 00:06:05:17
whether it's in the industrial space,
the consumer space, even some big TMT names
00:06:05:17 - 00:06:11:07
that I think that as we get closer to the end of the year, especially if we get a rate cut in September,
00:06:11:07 - 00:06:15:00
that I do think the sponsors will start moving
more quickly towards the IPO path.
00:06:15:09 - 00:06:21:02
Then away from the IPO product, we've seen a
very resilient market in follow-ons and converts.
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How do you see that activity sort of
going through the rest of the year?
00:06:24:04 - 00:06:28:22
Still expected to be very busy, particularly given the strength of the market and the overall market levels.
00:06:29:02 - 00:06:32:08
And investors continue to be putting capital to work.
00:06:32:08 - 00:06:38:06
We were involved in $1.5 billion primary
issuance last week in a block trade for SoFi,
00:06:38:06 - 00:06:42:21
which reported fantastic results on Tuesday morning
and launched a block trade that evening.
00:06:43:04 - 00:06:44:13
That trade cleared very well.
00:06:44:22 - 00:06:51:08
You saw Berkshire Hathaway sell down a secondary position in VeriSign last week that was north of $1 billion.
00:06:51:15 - 00:06:56:04
And we continue to see the convertible product
being used not only by growth companies,
00:06:56:04 - 00:06:59:19
but by investment-grade companies as
a substitute for investment-grade debt.
00:06:59:19 - 00:07:04:07
So unless something from a macro
perspective really changes the landscape,
00:07:04:07 - 00:07:08:10
we expect the follow-on and convert market
to be busy throughout the rest of the year.
00:07:08:21 - 00:07:10:05
Rich, thanks a lot for joining me.
00:07:10:19 - 00:07:14:08
And thanks, everybody, for listening to this
episode of the Mizuho Markets Mindset.
00:07:14:15 - 00:07:15:09
Until next time.