00:00:19:06 - 00:00:21:19 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. 00:00:32:12 - 00:00:37:05 We are clearly heading towards surpassing last year's $30ish billion of issuance. 00:00:37:11 - 00:00:43:01 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, 00:01:08:22 - 00:01:12:22 which has driven a lot of the pipeline that we're seeing into year-end 00:01:12:22 - 00:01:15:14 and those that have already been executed earlier this year. 00:01:15:22 - 00:01:18:15 What we're seeing over the next couple of quarters is, 00:01:18:15 - 00:01:22:10 overall, a lot of the transactions that didn't get done over the last couple of years, 00:01:22:10 - 00:01:26:23 companies have gotten together, they've organized, they've cleaned out their capital structures, 00:01:26:23 - 00:01:28:09 and they've come out better companies. 00:01:28:16 - 00:01:31:20 And those are the ones that we're seeing execute over the next couple of quarters. 00:01:32:07 - 00:01:34:07 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. 00:01:49:11 - 00:01:53:05 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 00:02:07:00 - 00:02:08:21 and do very well in the public markets. 00:02:09:08 - 00:02:14:19 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. 00:02:38:14 - 00:02:38:22 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 00:02:51:22 - 00:02:54:05 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. 00:03:03:11 - 00:03:06:02 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. 00:04:04:10 - 00:04:08:15 There are sponsors that have been sitting on portfolio companies for three, four or five years. 00:04:08:20 - 00:04:11:18 We obviously did not have an IPO window open the last several years. 00:04:11:18 - 00:04:16:06 And now that we do have a window and multiples are attractive, we're seeing those sponsors 00:04:16:11 - 00:04:19:19 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. 00:04:26:19 - 00:04:28:06 We're working on a couple of transactions. 00:04:28:06 - 00:04:30:17 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. 00:04:39:09 - 00:04:42:14 We had a client of ours file confidentially a couple of weeks ago. 00:04:42:22 - 00:04:46:12 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? 00:05:23:01 - 00:05:28:05 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 00:05:34:04 - 00:05:36:01 and need to get liquidity in their portfolio. 00:05:36:01 - 00:05:38:09 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. 00:06:21:10 - 00:06:23:22 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.