SpaceX IPO plan puts US$2.9 trillion of listings on the table

Trillions of dollars worth of private companies have avoided going public for years. Could retail investors soon get a chance?Author of the article:You can save this article by registering for free here. Or sign-in if you have an account.The floodgates could be poised to burst open on Wall Street for US$2.9 trillion worth of private companies that have avoided going public for years.Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.The prospect of a Space Exploration Technologies Corp. (SpaceX) IPO preparing the ground for so-called centicorns valued privately at US$100 billion or more, raises a dangerous question for all involved: How eager will stock investors be to embrace companies with controversial leaders, little or no profits and private-market valuations so swollen that they will dwarf every company that has previously made its debut on a U.S. exchange?The short answer is: Very.Canada's best source for investing news, analysis and insight.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Investor will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.“The median market cap of an S&P 500 company is close to US$40 billion; this is a completely different stratosphere,” said Paul Abrahimzadeh, a partner at 1789 Capital and a former co-head of equity capital markets for North America at Citigroup Inc. “A company like SpaceX will clearly cater to a wide swath of institutional investors — as well as retail — and is a must-own name.”Initial public offerings have been more or less stuck in a rut since a record US$492 billion year in 2021, and companies such as SpaceX, Stripe Inc. and ByteDance Ltd. that once would have been candidates for listings have attracted valuations in private funding rounds that leave most public companies in the dust, all without being exposed to the scrutiny that quarterly financial reporting brings.The complaints of investors denied access to the hottest big companies was matched by investment bankers bemoaning the big IPO fees they have been missing out on.Elon Musk’s rocket giant is making plans to go public, according to people familiar with the matter. If SpaceX goes public at a valuation even close to the US$800 billion it has been seeking in its latest private round — or for that matter the US$1.5 trillion value it is considering in a listing — it would be a powerful vote in favor of leaving the private sphere.“A lot of people over the last few years have felt the super high-value private companies don’t need to go public and maybe they’d never go public,” said Steve Studnicky, UBS Group AG’s co-head of Americas ECM. “Now, these companies are coming forward saying there is a path to a public listing and that’s helpful for a lot of companies and investors who want to see them lead the way.”A lot of these companies are too big to be sold, said 1789’s Abrahimzadeh, whose company is an investor in SpaceX. “So this is going to kick off a massive trend of IPO activity. Yes, we’ve been saying that for years, but there are no more excuses in 2026.”Bankers say mega-listings are doable, even if the structure needs to be carefully considered. Still, some centicorns will have work ahead of them to justify their valuations to investors. SpaceX is expected to produce about US$15 billion in revenue in 2025, increasing to between US$22 billion and US$24 billion in 2026, a person familiar with the matter has said.“I’m not worried about the IPO market capacity if you can make the math work. But I’d be suspect if OpenAI or SpaceX are really worth US$1 trillion or US$800 billion just based on what I understand their revenues are and what their growth rates are,” said David Erickson, an adjunct associate professor of business at Columbia Business School and a former co-head of global equity capital markets at Barclays PLC.“You have to make the math work for public investors to get behind them in a big way.”SpaceX offers a case study for those who believe the public markets are the best place for a huge company, as well as those who question whether these companies can handle the public market spotlight.Fans see an innovator pushing the boundaries of what is possible in space exploration. SpaceX has pioneered partially reusable rockets, and is the only commercial U.S. company capable of launching humans on its own to orbit. The company also currently operates the largest single satellite constellation ever created, which beams broadband internet coverage to more than 8 million customers, according to its website. And it is slated to jump start its direct-to-cell business with the recent acquisition of EchoStar Corp.’s radio spectrum.On the other hand, going public might complicate SpaceX’s capital-intensive plans, such as developing its behemoth Starship rocket — a fully reusable vehicle that it plans to use to launch future Starlink satellites and eventually fly humans to the moon and Mars. Musk and SpaceX would be beholden to shareholders who may be focused on shorter-term revenue and profits.“So much of SpaceX’s identity and culture reflects independence,” Carissa Christensen, founder and chief executive officer of BryceTech, a space research and analysis firm, said. “It is hard to imagine SpaceX as a publicly traded company with the ground rules and guide rails and scrutiny that go with that.”Musk has said before that SpaceX would not IPO before the company had achieved its ultimate goal of sending humans to the red planet, a point reiterated by President Gwynne Shotwell in 2018. “We can’t go public until we’re flying regularly to Mars,” Shotwell told CNBC in an interview.Even if the company has changed its mind on a listing, some investors may still be wary. If SpaceX offered five per cent of the company at a US$1.5 trillion valuation, it would have to sell US$75 billion of stock, easily making it the biggest IPO of all time. While state-backed Saudi Aramco raised US$29 billion in a listing in 2019 in favourable conditions — debuting in its home market and with no international offering — some question whether a company with a relatively short track record, and led by a figure like Musk who already runs a US$1.5 trillion dollar company, would have a similarly warm reception.“The challenge I would have with SpaceX is not just the math, but from an investor perspective governance would be a concern,” Erickson said. “Elon Musk could be a CEO of two huge public companies and then he’s got xAI, I would think people would be concerned about things like that.”A SpaceX listing as soon as mid-2026 could resolve the disconnect between public and private markets in a flood of mega-deals that some investors can’t afford to miss.As Rob Stowe, Barclays’ head of Americas ECM, put it: “Large deals have their own gravity.”A single IPO that brings in more than US$50 billion would trump the listing volume on U.S. exchanges annually in eight of the past 13 years, data compiled by Bloomberg show, when removing special purpose acquisition companies (SPACs) and closed-end funds.If an investor sits out an IPO that raises US$500 million or less and it does well, that won’t really impact their performance, Stowe said. However, “if you choose not to participate in a US$30 (billion) or US$50 billion IPO that does really well, that creates some significant challenges.”Looming over the whole enterprise is the concern that IPOs of this size have never been attempted.“These will be massive events,” said Morgan Stanley’s Colin Stewart, vice-chairman of global technology M&A and capital markets. Among the potential challenges: “Making sure the infrastructure can handle it.”For very large private companies that don’t really need to raise money, Stewart believes a direct listing — letting investors sell their shares on an exchange without an IPO preceding the trading — offers an appealing route to markets.“There’s no direct listing on file but it’s got to be considered for some of these large companies,” said Stewart. “They’re not desirous of capital, they have shareholder bases that look similar to a public company in terms of the number of institutions. All they’re really missing is retail.”Of course, the length of time these companies have stayed private and the sheer amount of money raised has resulted in shareholder bases that are not only larger than would be typical for an IPO candidate, they’re also more diversified. That could result in a direct listing being more actively discussed, according to Stewart.Coinbase Global Inc.’s debut in 2021 is the largest direct listing to date. Other high-profile direct listings include Palantir Technologies Inc. and Roblox Corp., which took place during the market’s COVID boom when the threat of volatility prompted some dealmakers to try to de-risk their deals.For portfolio managers that have billions of dollars tied up in private companies, the ability to return cash to their investors is top of mind. A McKinsey & Co. survey of these so-called limited partners in January showed that returns were rated among the most important metrics when evaluating managers, a figure that had climbed sharply from three years before.The need for returns may be a driver that ultimately kicks some of the closely-held firms to public markets. Others have more options. The question Morgan Stanley’s Stewart often gets is, “Why even go public when private markets are so good?”A counter-point is: What happens if private fundraising freezes up? “A downturn happens every five to 10 years and it can flip on a dime,” he said.“Liquidity right now seems great but it’s not a guarantee that liquidity will be there tomorrow,” he said. While companies have been able to let long-term investors and employees sell shares from time to time, there is likely a limit, according to Stewart.“At some point it gets harder and harder for you to sell the next tranche to the next person at a higher valuation,” he said. “So just go public, and let the market sort it out.”Bloomberg.comPostmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.