With the pace of IPOs dropping off in recent years, big financial firms are eagerly awaiting a return of the lucrative fees they can earn helping companies go public.
Morgan Stanley sees another way to benefit from the predicted increase in initial public offerings amid falling interest rates. It’s seeking to ensure its workplace division — Morgan Stanley at Work — has a prominent role in helping companies do things like set up plans to pay employees in part with newly issued stock.
To that end, Morgan Stanley announced Tuesday it has formed an exclusive partnership with Carta, a San Francisco-based technology firm whose services include assistance to private companies that are seeking to go public. According to a press release, Carta is now working with more than 2,000 private businesses that are moving toward eventually selling shares on public markets for the first time through an initial public offering.
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Jed Finn, the head of Morgan Stanley Wealth Management, said private companies have had a tendency in recent decades to remain private longer before holding an IPO. That trend means that firms now on the cusp of going public have years of growth behind them.
“As a result, the next wave of IPOs may include some of the largest, most sophisticated companies to ever go public,” he said in a statement. “Participants within these companies will need not just equity administration, but all the advice, guidance and financial planning that comes with a significant liquidity event.”
Pent-up IPO demand
Investment bankers and others who benefit from underwriting stock issuances have been eagerly predicting that IPO activity will pick up next year as interest rates continue to fall. The Federal Reserve added to those hopes last Thursday when it reduced its benchmark rate — this time by a quarter-point — for the second time in two months.
Morgan Stanley executives have been among an industry crowd predicting a pickup in IPOs.
“I would take the view that there are a whole bunch of great companies that are owned privately that do want to make their way into the public markets,” Morgan Stanley CEO Ted Pick said last month in an analyst call about the firm’s third-quarter earnings.
The pace of IPOs has already shown small signs of picking up. The number dropped precipitously from 2021 and 2022, falling from 416 to 90, according to the accounting and consulting firm EY. The revenue generated by those deals likewise plummeted from $155.8 billion to $8.6 billion.
Last year, though, the number of deals was up to 127 and the revenue generated up to $22.2 billion. And there were 121 deals in the first three quarters of 2024 — exceeding the figure for the same period in 2023 — and $27.3 billion in revenue generation.
Mike Bellin, IPO services leader at the auditing and consulting firm PwC U.S., said he thinks some private firms were definitely sitting on the sidelines this year, although he too has recognized an upshift in deals. Including only domestic IPOs involving valuations of more than $25 million and excluding any carried out by special purpose acquisition companies, or SPACs, Bellin counts nearly 60 IPOs so far this year. That’s nearly double the 35 deals that met those criteria in all of 2023.
Even with that increase, Bellin said he thinks many private firms were awaiting the results of the U.S. presidential election before seeking to go public. Now with Donald Trump set to be inaugurated in January, policies look to be aligning in a way that will benefit IPOs.
Trump has expressed interest in both corporate deregulation and lowering taxes, two shifts that tend to favor dealmakers. But he favors tariffs, which can lead to inflation and higher interest rates.
“Everyone expects strong growth under the new administration,” Bellin said. “There will be a favorable tax regime, although some questions about interest rates and tariffs, particularly for any companies that have a global reach.”
Linqto Capital President Joe Endoso agreed there are reasons to be cautiously optimistic about IPO prospects next year. His firm helps investors put money into pre-IPO companies.
Endoso saw many of the same forces at work: deregulation and tax cuts likely easing the way for public offerings while tariffs and resulting higher interest rates possibly hindering them.
“Ultimately, the net impact will depend on the balance between pro-business initiatives and any economic disruptions that may arise from these policies,” Endoso said.
Morgan Stanley’s many lines of business
Like any firm with a large investment bank, Morgan Stanley is interested in underwriting as many deals as it can in an IPO revival. Its partnership with Carta, though, is aimed primarily at helping newly public firms manage plans to pay employees partly in company stock.
Assistance with equity compensation is a mainstay of Morgan Stanley at Work’s business. The firm has said it helps manage these sorts of plans for roughly 6.5 million stock plan participants around the world, both through its E-Trade online brokerage and a system called Shareworks acquired in 2019.
Morgan Stanley’s deal with Carta is also an example of how the firm is encouraging its various business units to work together to drum up even more business and, ultimately, profits. The new partnership directly involves Morgan Stanley at Work, but Morgan Stanley is of course looking for opportunities for other parts of its wealth business, as well as its investment bank.
“At the end of the day our hope is that these referred clients are introduced to all that Morgan Stanley can do for them,” Scott Whatley, the head of Morgan Stanley at Work said in a statement. “In addition to equity compensation management, clients have the option to connect with our premiere investment bank franchise, or their employees can utilize our financial advisors as they plan for their financial futures.”
Carta CEO Henry Ward said his firm has long specialized in helping private firms go public but didn’t previously have much to offer following an IPO.
“Until now,” he said in a statement. “This collaboration brings together the best private market solution and one of the leading public platforms to help create a smooth transition from private to public.”
$5 trillion sitting on the sidelines
Pick has estimated workplaces are a doorway to as much as $5 trillion in client assets waiting to be managed and sees Morgan Stanley at Work as a primary means of advancing toward the firm’s goal of eventually having $10 trillion under management. Morgan Stanley reported having $7.5 trillion in its wealth and investment management business lines in the third quarter.
Morgan Stanley has already worked together to help more than 385 businesses go public through IPOs. Besides managing equity compensation, Morgan Stanley and Carta offer services like going through companies’ capitalization tables to make sure their numbers are accurately reported in legal documents. They also offer assistance communicating the latest news on the IPO process to employees, investors and other concerned parties.
