In a recent dialogue at Jefferies’ 2023 Private Internet Conference, Cully Davis, Vice Chairman of Equity Capital Markets and Head of West Coast Technology Investment Banking, explored the evolving dealmaking landscape, the cautious re-entry of companies and investors into the market, and the transformative potential of artificial intelligence.
“When Will the Market Recover?”
Davis reflected on how businesses have adjusted their strategies amid uncertain market conditions. Companies have scaled back their ambitions, making tactical moves to reduce cash burn and moderate expansion efforts. While there are positive indicators, the exact timing of a full market recovery remains anyone’s guess.
“We’re getting close,” Davis said. “The fed is close to halting rate hikes, and the economy and consumer have weathered the storm better than expected. But it remains unclear when we’ll wake up and see dealmaking return full throttle.”
Davis characterized current sentiment as a “waiting game,” with firms hesitant to spearhead aggressive moves. Investors are hungry for new ideas, but private companies are reluctant to lead the initial wave back to market.
Public companies, being more transparent, can offer a window into the economy’s health. “Many private companies are looking to public markets as an indicator,” Davis shared. He suggested a resurgence in public market activity might catalyze new activity among private enterprises.
A Coming Wave of IPOs?
Davis emphasized that the sluggish IPO pipeline isn’t born of a dearth of capital. Investment managers, especially in equity funds, are sitting on ample dry powder. The lack of movement stems from diminished business confidence across the market ecosystem.
“The issue isn’t a mismatch between capital availability and ideas,” Davis observed. “It’s a lack of confidence in forecasting performance and transacting at current multiples.”
Investor interest is growing as valuations rise, but a resurgence in dealmaking is a “two-sided equation”. It requires both the willingness of investors to deploy capital and the readiness of companies to embrace opportunities. Davis projects confidence is slowly returning, and the market is ready to absorb a wave of renewed activity.
The summer IPO market, after an unusually quiet period, has shown signs of life. This month, Instacart closed up 12% in its long-awaited Nasdaq debut, and shares of U.K chip designer Arm Holdings rose almost 25% in the largest IPO since late 2021.
Cava Group, a popular Mediterranean-style restaurant chain, roughly doubled its value during its June debut, in an offering co-run by Jefferies. Companies like Savers Value Village, a thrift store operator, and Oddity Tech, the holding company for direct-to-consumer beauty brands, also enjoyed strong public offerings. These successful summer launches may signal a resurgent IPO market this fall, as the frosty dealmaking environment continues to warm up.
AI’s Transformative Future
The dialogue then turned to the exciting frontier of AI. Davis envisions a future where AI isn’t just a technological novelty but integrated into people’s everyday lives.
“AI is massively impactful, and it will be permanently so,” he said. “We’re finally seeing the application of AI, and it’s going to massively change markets and industries.”
Davis also acknowledged the challenges AI might present, stressing that it’s technologists’ responsibility to ensure its application is in service of beneficial change. “The challenge will be ensuring these technologies are harnessed for good,” Davis shared. “But I’m very confident AI will soon be permanently imbued in everything we do as a society.”
Cully Davis’ insights shed light on the mix of caution and optimism defining the present investment climate. As companies prepare for a market resurgence on the horizon, his perspective offers a glimpse into a future reshaped by emerging technologies and a fresh approach to dealmaking.