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Keith Canton: Every company has a story that they want to tell investors. And you need to make sure that you have KPIs that match that story. So if you want the market to evaluate you on a particular metric, let's make sure we take the time that our business is actually tracking to that metric and we're optimizing on that particular metric. And that's really going to, I think, give the buy side a lot of confidence. It's going to match up well with the qualitative story that you're telling. And that's really the way to get rewarded from an evaluation standpoint in the public markets.

Laurel Zhang: Hi, everyone. Welcome to ‘What's the Deal?’, our investment banking series on J.P. Morgan's Making Sense. I'm your host, Laurel Zhang, sitting on our Equity-linked Capital Markets desk. Today, we'll be exploring recent trends in the IPO, follow-on, and convertible markets, uncovering dynamics shaping the markets today. Joining me are my two esteemed colleagues, Keith Canton, who runs our Equity Capital Markets franchise here in the Americas, as well as Gaurav Maria, who runs our Equity-linked Capital Markets business for the Americas. Keith, Gaurav, welcome, and thank you both in advance for the time today.

Keith Canton: Great. Thanks for having us.

Gaurav Maria: Great to be here.

Laurel Zhang: Just to dive in here, Keith, can you just give a quick overview of the recent IPO and follow-on activity year-to-date, and maybe just compare that a bit with, let's say, the activity we saw for last year in 2024?

Keith Canton: Yeah maybe I'll start by just maybe taking a little bit of a step back. I mean, coming off of 20 and 21, where we had enormous IPO volumes, well north of $100 billion a year, we then plummeted to about $7 billion in 22. And we've been slowly fighting our way back. We had about $20 billion in 23, about $33 billion in IPO proceeds raised last year. And so we came into this year with very high expectations.

Laurel Zhang: Yes.

Keith Canton: I think we all thought we'd be north of $50 billion of IPOs in volume on the back of what we thought was going to be deregulation, lower taxes, and a very pro-business environment. And that clearly hasn't materialized to expectations, unfortunately, at least for us. So when we think about where we sit today, the tariff announcements in April really created a sense of uncertainty, and that really slowed down the IPO activity. So we're currently sitting at about $12 billion of IPO proceeds raised year-to-date. Again, that run rate's not going to get you to $50, but we've got a fighting chance to perhaps get close to on par with where we finished last year. So we saw volatility spike. The VIX is how we measure volatility in our market. That jumped to north of 50 in several instances. And for the IPO market, you really want to see sub-20. And we really haven't been back at that level really until the last couple of weeks, which should hopefully bode well for IPO issuance going forward. So we're very much waiting to see on that side. On the follow-on and block activity, that's actually tracking roughly on par with last year's levels. We've had some very large transactions, multi-billion dollar deals. Block activity has been fairly robust. And so we actually have a fairly good window, I think, now to get a lot of issuance out, both for corporates who are thinking about bolstering the balance sheet, thinking about making acquisitions, thinking about supporting growth plans, and then also on the sponsor side, who are really looking to sell secondary positions that they own in public companies as a catalyst to return capital back to the LPs. It feels like we're starting to make progress again in the markets.

Laurel Zhang: Yeah, 100%. There is a lot of room to make up, but it seems like we're headed in the right direction. And then, Gaurav, on the flip side, for the convertible space, based on your view, how has activity been this year versus last year? I'm sure some of that will carry over based on what Keith just described as well.

Gaurav Maria: Yeah, no, exactly. Look, this year we've had about $25 billion of issuance. It is actually quite close to what we did at the same point last year. And our pipeline remains quite robust. I will say 2024 was a record year. We had a very strong second half. I feel quite optimistic that we'll have a pretty good second half this year as well. We've had a little bit of a slowdown in April because of all the tariff-induced volatility. But look, conditions feel quite favorable. So while I can't predict that we'll be exactly at 2024, we certainly should be above historical averages.

Keith Canton: I'm putting that down in the budget right now!

Laurel Zhang: (laughs) Have that down in paper for us. And then, I guess, Gaurav, on that topic for the convert space, given the nature of the product, how have you seen this increased market volatility actually help some of our issuance volume?

Gaurav Maria: That's a great question on volatility. It's somewhat counterintuitive to most other products, those other equity products. So net-net volatility has actually helped us, I would say. You know, greater volatility means better pricing. So like for like, we are actually seeing pricing environment today is better than what it was at the beginning of the year. Terms are visibly improved. We are seeing investor sentiment is actually better as well because investors benefit from higher volatility in their portfolios because they're fundamentally long and they make more money as vol goes up. So look, most investors are up. Demand continues to be extremely robust. So I would say, look, where we sit today, the volatility has certainly helped our product. There is a flip side to it. Volatility also means stock prices tend to go down. And as stock prices go down, that might give issuers pause. But look, we have various tools in the toolbox to address some of those situations and client-specific asks.

Laurel Zhang: Yeah, that makes a lot of sense. And then to your point on more maybe bespoke structures, have you seen any of those emerging trends or issuers using maybe more innovative structures and frameworks to achieve certain goals for the convertibles space?

Gaurav Maria: Absolutely. I would say over the last couple of years, we've had numerous trends and certainly some more which have become more relevant in recent volatile times. The first has been just a general trend towards a net share settled structure, which is more favorable accounting. That accounting change kicked in a couple of years ago. But, you know, recently, we are seeing more share buybacks, so convertible funded buybacks. We are seeing more uses of derivative instruments like capped calls, which help to mitigate dilution. And recently, we've actually started to see more what we call delta placements to manage share price impacts for clients. Overall, I feel as stock prices become more choppier and markets are overall volatile, issuers are certainly more focused on managing dilution, managing the message, and managing stock price impact on that day. I'm pleased to say we've got plenty of tools and most issuers have been able to structure around these transactions.

Laurel Zhang: Yeah, that's great to hear. I think at the core, this is ultimately a structured equity product. And given that nature, we're able to find solutions regardless of some of the choppiness or issues we've come across.

Gaurav Maria: Exactly right.

Laurel Zhang: I think moving quickly to just a sector framework, obviously, much of the issuance, historically speaking, have come from whether that's tech or healthcare, some of these more high growth areas. But in the past year or so, Keith, where have you seen maybe some sector activity on the IPO or follow-on side?

Keith Canton: Yeah, maybe I'll tackle those separately, just given the differences in the market. But when you think about the follow-ons, that's been fairly diverse across sectors. There's an observable market price, investors can take a look at that screen price and then figure out what discount do I need to come in. So we really haven't seen a dramatic slowdown across sectors. Just in the last week, we saw deals in technology, industrials, aerospace and defense, healthcare deal, financial services. So that the follow-on market, I think investors are very comfortable. And the real question is whether or not issuers like their stock price enough to move forward. But investors can put a price on that risk. And so that's been fairly healthy. On the IPO side, that's a different story. IPOs are much harder to price. Those sectors that are not going to be impacted by tariffs, again, think financial services, fintech, some of the software names probably first to think about reopening the market. Those names that are going to be impacted by tariffs and really have to take a step back and see what certainty do I have on my cost structure? What does that mean for my EBITDA levels? That's going to take longer to materialize. So think hardware names, industrial names, consumer names, those who have to kind of really figure out what their supply chain matters. That's going to be, I think, last to come because investors are going to have a harder time, one, understanding the impact and two, how do you price that risk appropriately? So we really do have a bit of a tale of two cities when you think about who can access the follow-on market versus who can access the IPO market today.

Laurel Zhang: Yep, that makes a lot of sense. And then Gaurav, similarly on the convert space, where have most issuance has been coming from? Does it surprise you? Is it more diversified, less diversified than let's say this time last year?

Gaurav Maria: Yeah. I mean, I would say issuance between 24 and 25 is actually broadly similar. It is very diverse. I would certainly make a comparison that five years ago, it was very tech heavy. And I think as a business, we've been very pleased at the diversity that we've seen over the last kind of 18, 24 months. We've had a bunch of old economy sectors like utilities. We've had REITs, real estate, industrial companies access the convertible market in addition to the tech and healthcare, which has always been a large user of the product. But look, we are seeing a little bit more tech in the last 12 months or so as valuations have come back up. But look, on the whole, it's diversified. And I think different issuers are able to access the market at the same time.

Laurel Zhang: Yeah, it's actually, I think very promising to see, right? Even though times are very uncertain, markets are very volatile. Nonetheless, you've seen issuers from a variety of sectors be willing to tap the market today, which is great. And then zooming out a bit to Keith's point earlier on some of the geopolitical tensions, how do you feel like, Keith, that's impacted investor sentiment? What's the latest we're hearing from them?

Keith Canton: Yes, investors are very much trying to digest all the news flow. But I think the news on the China-U.S. tariff pause really, for the first time, shifted investor sentiment to the point where the fear of missing out on deals overweighed some of their concerns around the uncertainty in the broader market. So investors have proven remarkably willing to participate in capital markets activity. They're buying deals. If we get the price right, there's a lot of interest. And they're really viewing the new deal market as really a good source of alpha generation. Deals have generally traded fairly well post-pricing. Just this week, I'd say, this week and last week, we’re going to see probably close to $10 billion of paper price in the equity and equity-linked markets, which is fantastic. We're moving, again, very much in the right direction. That being said, I think investors are still very much disciplined in terms of what they're willing to pay. And so as we sit here, investors have really proven willing to miss deals if they don't think they're getting in at the right entry point. So that's certainly something we keep an eye on. But investor sentiment has actually proven to be more resilient than we would have expected seeing all the volatility.

Laurel Zhang: Yeah, I think that's great to hear. And then, Gar, from the convert perspective, would you say that's similar? Investors are still constructive. Is it even better because of some of the volatility? What's the thinking there?

Gaurav Maria: Yeah, I mean, I would say it's a little bit better than what we see in the straight equity markets because the nature of the product is downside protected and indexed to the upside. So investors enjoy protection on the downside, but can't really enjoy the upside. So yeah, our markets tend to be a little bit more resilient. That said, the impact of volatility, whether it's tariffs or whether it's geopolitics, shows up in stock prices. So going back to my point, some issuers may want to hold back from an issuance point of view, even though investors are ready to deploy capital. So that tends to be the biggest impact. But no, I think on the whole, the convert investor base, the convert market remains strong. In choppier time, we do tend to see long only investors sometimes pull back a little bit more because they're not hedged, but the hedge funds are always there as liquidity providers.

Laurel Zhang: Yeah, 100%. And then to that point, some of the performance we've seen in the secondary market you both already alluded to, it seems decently promising. But how is aftermarket performance really important to our investors and as well as their willingness to participate on future deals?

Keith Canton: You know, getting pricing right, I think is important, obviously, for investors because they want to make a return. And if they do well, you're going to see them continue to have more risk appetite and continue to be willing to deploy capital. But I think a lot of times it's equally important for the issuers or the sellers, if it happens to be a financial sponsor, because you're going to want to return to the market. And so while we were always focused on how do we optimize the price for this particular transaction, we oftentimes want to make sure our issuers or sellers take a little bit of a view that if they need to come back in a reasonably, short period of time, you want to make sure that investors feel really good, that you want to make sure you continue to execute your business, and you want to really feel confident that you're going to continue to have access to capital. So there's really a balancing act that we try to strike between how do we get the best price, the optimal price for our issuer clients, but also you want those deals to work. And I think we've been able to kind of strike a pretty good balance this year. The last 25 follow-ons, which is probably the month of May and maybe late April, you know, those are up about 7%, you know, which feels like a really good balance for both sides. IPOs tend to be a little bit of a mixed bag. I'd say about half of the deals are trading above the IPO price, half are trading below, but the average deal is up about 10%, 11%. So again, still delivering, returns for investors. And you compare that to the S&P, which is effectively flat to slightly down year to date. And so you can see why issuers, you know, want to participate in new issues.

Laurel Zhang: Yeah, that's excellent. That stat is far more positive than I anticipated, to be frank.

Keith Canton: But again, it's still 50-50.

Laurel Zhang That's right.

Keith Canton: So on average feels pretty good. Half the deals are still below IPO price.

Laurel Zhang: That's very true. And then Gaurav, from the convert side, in terms of, I guess, secondary performance, going off that investor sentiment piece, have things been trading fairly promisingly with the increased volatility, or is there some sort of hesitation as well?

Gaurav Maria: No, look, I would say it's been actually quite promising. But I agree with Keith, we always want deals to trade up and investors to make money. And it's a very fine balance to price it just right. So you're not leaving too much money on the table, but also it shouldn't trade below issue price. And I would say we've been quite successful across the street that deals have in general performed, you know, good secondary market performance, just as it leads to better risk appetite. It's kind of a virtuous cycle as deals perform, investors want to buy more. And that always helps our issuers' clients. But look, I would also say volatility in the secondary markets just has helped portfolios. Investors are, you know, long volatility. And as issuance dried up, let's say in the month of April, we did see secondary markets richened, which has helped pricing for new issuers that came to the market in May.

Laurel Zhang: Yeah, 100%. I think zooming a little bit, Keith, just into the IPO preparedness topic specifically, there's obviously a handful of issuers who are now a little bit on pause or hesitant in terms of a 2025 timeline, but looking further ahead into 2026. So at this point, only maybe six or seven months from now, in terms of what areas those issuers can work on to prepare, what are some of the topics that they can be looking at today, even as they look ahead?

Keith Canton: It's a really good question, because we do have a very deep pipeline of IPOs, a lot of whom we thought were going to come to market, you know, in 25. Some of those are going to be very clearly pushed into 26, and we're going to keep a close eye on market conditions. But, you know, the obvious one is execution, right? There is no substitute for just continuing to execute your business quarter after quarter, and that's going to serve you well. But putting that aside, I think two things that I always try to think about. One, do the companies have a really good handle on their ability to predict their business? Do you know what's going to happen in your business? Can you convey that to the market? That's really, really important. We always talk about having a beat-and-raise model when you think about the IPO market, which means investors will have their view as to how you're going to perform quarter in and quarter out, and can you meet those expectations and perhaps even exceed them by a little bit? And to do that, you really need to have a good handle on your business from a predictability standpoint. So that's critical. It's just making sure, you know, companies understand, you know, that part of their business. And then the second one that I always think about, which is maybe a little less obvious, is every company has a story that they want to tell investors. And you need to make sure that you have KPIs that match that story. So if you want the market to evaluate you on a particular metric, let's make sure we take the time that our business is actually tracking to that metric and we're optimizing on that particular metric. And that's really going to, give I think, the buy side a lot of confidence. It's going to match up well with the qualitative story that you're telling. And that's really the way to get rewarded from an evaluation standpoint in the public markets.

Laurel Zhang: Yeah, that's all very helpful. And it's so funny that you talk about predictability, as being one of those key thresholds to meet, especially in today's market. I think that's incredibly difficult, right, because everything is super unpredictable. But it's very sensible that those are some of the areas that folks should be looking at when considering.

Keith Canton: A little easier said than done, but it does pay massive dividends, if you can get it right.

Laurel Zhang: 100% for sure. And then just looking ahead to the second half of the year, as we're sitting here in late Q2, where do you see opportunities for issuers to execute? And more importantly, the harder to answer question, what do we think needs to happen in the broader markets in order to see activity continue to rebound, as well as maybe investors to be of more of a risk-on type of mindset?

Keith Canton: I think we're going to have a fairly active next few weeks. I think we're going to have a pretty good window. I think generally speaking, the headline news flow should be reasonably neutral to positive. Volatility looks like it's largely moderated. And so I think you're going to have a fairly active window. So we expect to see a lot of our clients look to take advantage of that window and issue, you know, particularly on the follow-on side for public companies. As we think about what happens in the back half of the year, I think as you get past June, investors are going to very quickly turn their attention to what are Q2 earnings? You know, were those earnings impacted by tariffs? Have they been impacted by the noise? The Q1 earnings were actually much better than feared, but it didn't really take into account, you know, the tariff news and the tariff calculus. And so I think people are going to very quickly turn their attention to what are they hearing from Q2 guidance? What are they hearing from Q2 results? And what does that mean in the broader context of market evaluations? And so I think those we're really going to focus on. And the key going forward is really do we get any certainty around tariffs and fiscal policy? And if that happens, I think that's going to give both issuers and investors the confidence to price risk, deploy capital, and hopefully we'll see a lot more activity in the market going forward.

Laurel Zhang: Yeah, that makes a lot of sense. And it's very helpful to hear that even despite some of the uncertainty, there's still decent chances of folks, you know, being willing to tap the market during that timeframe. And Gaurav, similarly, from the convert perspective, how is your viewpoint shaping up for the latter half of this year?

Gaurav Maria: Yeah, I mean, look, I would say pipeline is strong and is growing. Dialogue is, you know, pretty high from an issuer point of view. And I think most people do want to tap the market at some point. So we feel generally good about the rest of the year. But in terms of what will help and what will drive issuance, I do think refinancing is going to be a big theme. There's a huge wall of maturities across converts and debt in 2026 and 2027. So a lot of that will start getting refinanced in late 2025 and continue into 2026. So that'll be a big theme. But look, overall, what we would look for is, you know, stable and rising equity prices because share price is a big determinant for when issuers decide to come to the market. You know, a rate cut in second half would certainly be helpful for the right reasons. I would say fears of recession going away and, you know, clarity around tariffs is certainly going to help stock prices and overall sentiment. I also hope there'll be a bit more M&A activity, which will drive equity issuance, whether it is in the follow on markets, but also, you know, one of our products is the mandatory convertible, which, you know, comes in quite handy for M&A financing. So I'm hopeful that will also be the case. And look, we'll always have opportunistic issuers. Despite all the volatility, there are always companies, always sectors, which are outperforming. And we certainly hope we'll see some opportunistic issuance along the way.

Laurel Zhang: Yeah, that's incredibly helpful. I think the theme, it sounds like for the second half of the year is just cautious optimism, if you will, as is with much of our market. But thank you both very much for the time. That concludes today's episode of ‘What's the Deal?’ A big thank you to both Keith and Gaurav for sharing their insights on the current state of the equity capital markets. We hope our listeners found the discussion enlightening and gained a deeper understanding of the opportunities as well as the challenges that lie ahead. Stay tuned for more future episodes as we continue to explore the ever-evolving landscape of finance and investment. I'm your host, Laurel Zhang. Until next time.

Voiceover: Thanks for listening to ‘What’s the Deal?’ If you’ve enjoyed this conversation, we hope you’ll review, rate, and subscribe to J.P. Morgan’s Making Sense to stay on top of the latest industry news and trends, available on Apple Podcasts, Spotify, and YouTube.

This material was prepared by the investment banking group of J.P. Morgan Securities LLC and not the firm's research department. It is for informational purposes only, and is not intended as an offer or solicitation for the purchase, sale, or tender of any financial instrument. © 2025 JPMorgan Chase & Company. All rights reserved.

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