The Takeaway: A Q&A With Matthew Dodd and Daniel Klausner on the IPO Market in 2025

What do you think the impact of tariffs will be on the U.S. IPO market in 2025 and beyond?

While the first quarter of 2025 saw the strongest start for IPOs since 2021, the impact of tariffs is anticipated to be a general slowdown throughout 2025. A common phrase to describe the IPO market is that “volatility and uncertainty are the enemy of IPOs,” as market volatility, linked to tariff announcements and rapid policy shifts, will likely dictate narrow ”windows of opportunity” for successful IPOs. Volatility in the markets, such as we saw in April, makes it challenging to engage with the buyside around valuation, given that in April, the S&P 500 swung several percentage points a day, coupled with similar moves in valuation metrics. Operationally, IPO companies exposed to tariffs, along with a potential slowdown in the GDP, impact the certainty of projections, which form the basis of the IPO company’s market capitalization.

That being said, some of the market’s initial reactions lately have been more muted, with investor sentiment poised toward a burgeoning ”risk-on” posture. Investors are still demonstrating discipline with their appetite for IPOs, with a strong preference for companies with proven profitability, robust cash flows, and resilient business models capable of weathering economic storms.

May has seen a “restart” in the IPO market with several successful pricings. Further progress on tariffs and potential Federal Reserve rate cuts in 2025 could continue to provide tailwinds to IPO activity.

What is the outlook for the next 18 months for the IPO market?

The general outlook for IPO activity is one of cautious optimism, though it is unlikely to mirror the frenetic pace of 2021. Cross-border listings made up more than half of the U.S. IPOs in Q1 2025, despite escalating U.S. protectionism, suggesting the depth, liquidity, and perceived stability of U.S. capital markets remain highly attractive to international issuers.

Private equity and venture capital dynamics could shape capital availability. PE firms are contending with pressure to exit aging portfolio investments. These companies should begin to tap the IPO market as clarity around tariff policies continues to crystallize.  

After a turbulent two years in the IPO markets, are we seeing a revival of dual-track processes?

Dual-track processes are indeed seeing a revival. Over the past year, we have seen a significant uptick in dual-track interest. Several factors are driving the dual-track revival now: valuation arbitrage and flexibility. A credible IPO pathway can serve as a significant bargaining chip in M&A negotiations, incentivizing potential buyers to offer more attractive terms or expedite their decision-making process to avoid losing the asset to the public markets.

The key to maintaining flexibility when pursuing a dual-track process is ensuring operational and financial reporting readiness under either scenario. Accordingly, veteran corporate officers and board members begin investing early in IPO readiness workstreams. 

The tradeoff for a dual-track process is that it can be resource-intensive. For an IPO, companies must be able to meet the demands of IPO readiness, “testing-the-waters” investor meetings, and public company due diligence, all at the same time as turning their attention to the M&A process, which includes management presentation, site tours, and M&A sale negotiations. It is important too for boards and owners to critically assess these resource factors before heading down the dual-track path. Despite the extra effort, dual-tracks have a proven record of leading to successful outcomes on favorable terms.

What is the recipe for success for companies seeking an IPO in the current markets?

First and foremost, a company needs to clearly articulate its equity story and rationale for going public.

Secondly, a thorough assessment of the company’s current state versus public market demands is essential. Activities such as financial reporting, operational efficiency, corporate governance, and technology infrastructure need to be scrutinized. The outcome should be a prioritized roadmap that remediates any identified gaps.

Thirdly, and this is a significant undertaking, companies must prepare two to three years of audited financial statements. These financials need to be compliant with U.S. GAAP (or IFRS, if they are a foreign private issuer, as may be the case for cross-border IPOs) and, crucially, they must be audited under PCAOB standards. This is often a long lead-time item, so early preparation is key. 

Finally, readiness is paramount, especially if a company is considering or might be targeted by an SPAC. The SPAC IPO market has recently shown considerable activity. When an SPAC identifies a target, the timeline to becoming a publicly traded company is dramatically compressed. The foundational elements of public readiness will need to be in place to meet the aggressive timeline—robust equity story, gap analysis, audited financials, detailed financial planning and analysis (FP&A) and close processes, and an MD&A. Being ’IPO-ready’ or ’SPAC-ready’ means proactively building this public company infrastructure before an opportunity, such as an SPAC transaction, materializes. This proactive stance allows a company to engage from a position of strength and capitalize on market windows, rather than being caught unprepared and potentially missing a pivotal monetization event.

What should companies (and sponsors) be doing now if they’re considering an IPO in 2026?

In short, a 2026 IPO requires a concerted effort starting today. It’s about fundamentally transforming the business to meet public market expectations and demonstrating a clear, resilient path to long-term value creation. Those who are best prepared will be best positioned to pivot quickly and succeed when the market window opens. We’re typically looking at an 18- to 24-month process.

Most companies conduct some form of readiness assessment. Conducting a comprehensive readiness assessment across finance, operations, and governance will help identify areas needing attention. A significant part of this preparation involves their financials and reporting capabilities. This includes working toward having two to three years of financial statements audited to PCAOB standards, and proper systems and procedures in place for go-forward reporting. Once a readiness assessment has been completed, companies should pivot to work on gap remediation, as some areas, such as systems and hiring personnel, can take time to fully address.

Sponsors play a pivotal role in orchestrating all of this. Their focus should be on driving the readiness agenda. This includes providing strategic guidance, ensuring the company is adequately funded for these preparatory steps, establishing strong governance, and aligning all stakeholders, especially management, around the IPO objectives and timeline.  

What are some of the most common accounting areas to evaluate or revisit when doing an IPO?

When preparing for an IPO, companies will need to critically evaluate several key accounting areas. Revenue recognition is going to be a primary focus, especially for businesses with complex contracts or variable considerations, demanding robust processes and documentation due to SEC scrutiny. Segment reporting also requires careful attention, as it’s often a new, detailed disclosure for public entities. Additionally, accounting for financial instruments and equity awards, calculating earnings per share (especially with complex capital structures like Up-Cs or de-SPACs), and the presentation and reconciliation of non-GAAP measures are all subject to heightened SEC review and require thorough preparation. Successfully navigating the public reporting requirements underscores the need for early and detailed planning, access to specialized technical expertise—whether that’s in-house or through external advisors—and controls to support the judgments and estimates made.

What are the top considerations when hiring finance professionals to staff up for an IPO?

Building a finance team capable of navigating an IPO and operating effectively as a public company is a critical early step. For companies looking to staff up, several key considerations are top of mind.

One of the top priorities will be securing strong strategic leadership, and that means locking in the right CFO. They’re the ones who will really drive the financial strategy, engage with investors, and oversee the whole compliance landscape.

Then, focus on building out the team with key skills. You’ll need individuals with proven SEC reporting experience—folks who can handle the S-1s, 10-Ks, and 10-Qs and manage the SEC comment process. Experience in SOX compliance and robust internal controls is critical for those complex areas. Deep technical accounting knowledge is also essential.

Strong FP&A is another must-have for accurate budgeting, forecasting, and delivering the strategic insights investors expect. Of course, bringing in people with prior public company experience is incredibly valuable, as they already understand the demanding pace and scrutiny.

From a process standpoint, it’s crucial to start early—finding and onboarding this kind of talent can easily take six to 12 months, if not more. The main goal here is to construct a finance function that’s truly ready not just for the IPO itself but for the ongoing, heightened demands of operating as a public company right from the start.

Houlihan Lokey is uniquely positioned in the marketplace as one of the only financial services firms that provides independent equity capital markets advisory services coupled with the full suite of IPO readiness consulting services. In addition, our Capital Solutions Group provides a wide array of solutions and products, such as private debt, growth capital, minority investments, structured equity and debt, and public equity IPOs, along with fundraising and continuation vehicles for private equity funds. Houlihan Lokey delivers all of these products and advice to companies as they try to navigate these choppy markets and work out their options.