Finally, a PE Exit Ramp

Good morning and happy Monday.

How bad is the hangover from one of the largest and costliest IT outages in internet history? A lot worse than yours on New Year's Day, one can only hope.

In July, the cybersecurity firm CrowdStrike pushed out a buggy update that crashed millions of computers worldwide, sending its share price into a tailspin. But now, the firm has completed its turnaround — and then some. At market close Friday, shares of CrowdStrike traded at around $359 a pop, above where they traded the day before the outage, which means the firm has fully recovered its lost $30 billion in market value. We, on the other hand, remain mortified that even a software update can be too big to fail nowadays.

The IPO market has one X factor this year: private equity.

As the New Year rolls in, Wall Street is preparing for a slew of listing announcements from private equity-backed firms, according to a Financial Times report this weekend.

IPOMG

Last year marked a turnaround year for the IPO market, which has been stymied by the post-pandemic spike in interest rates. The 183 public listings in the US last year marked a 44% year-over-year increase from 2023, while the total raised reached around $32 billion, or nearly 60% above 2023 levels, according to Dealogic. But that still lags the norm of roughly $38 billion per year raised by IPOs in the years leading up to the pandemic spike. Bankers told the FT they're hoping the IPO market will reach par once again this year. And there's hope that last year's successes will spur an appetite for more listings: Of the 10 largest IPOs last year, nine rang in 2025 with share prices above their initial listing prices. Meanwhile, the spectre of more interest rate cuts — even if at a clip slower than originally anticipated — and a more relaxed regulatory environment make the IPO market look all the frothier.

Enter private equity. The post-pandemic dealmaking drought has the industry warding off frustrated backers who have been waiting – and waiting – to see a return on investment. All of which means PE firms might finally have the perfect exit ramp to cash out on maturing portfolio companies and cash in on resurgent demand for IPOs:

• The dominoes are already starting to fall. Medical equipment-maker Medline — owned by buyout firms Blackstone, Carlyle and Hellman & Friedman — filed for an IPO just before Christmas, while the PE-backed software firm Genesys has been planning its IPO since October.
• It's a continuation of a trend from last year. According to a recent report from Ernst & Young, PE firms were backing 12 of the 20 "mega IPOs" — way up from just two the year prior.

"With an [economic] backdrop that is a bit more certain, more of a pro-business bent to regulatory policy and the Fed [cutting interest rates], we should be busier for sure," Eddie Molloy, global co-head of equity capital markets at Morgan Stanley, told the FT. "Large [PE-backed] IPOs will be the most important theme."

Dry January: Bringing maturing companies to the public market isn't the only New Year's resolution for many large PE firms. The industry is also sitting on an absolute mountain of dry powder — or capital that's been raised but not yet invested. According to figures from data provider Preqin seen by The Wall Street Journal, PE firms have more than $500 billion of dry powder from funds raised in 2020 and 2021 alone — with most such funds having required investment periods of four to six years. Take it from us humble newsletter writers: Sometimes a deadline is the ultimate motivator.

Written by Brian Boyle

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The Chinese Communist Party will give citizens a great deal for their old smartphones. 

On Friday, Beijing announced that a state-subsidized trade-in program that previously applied to big appliances and cars will now be widened to include smaller electronics including smartphones, per Bloomberg. It's part of China's efforts to give its flagging domestic consumer market a shot in the arm, especially since its export industry is weakened and heading for some major geopolitical dustups.

Phoning it In

The Chinese government spent a lot of last year trying to stimulate the country's ailing economy, which buckled under a timid consumer market and a full-blown real-estate crisis. According to a McKinsey report, the government's various stimulus packages did generate a smidge of momentum — retail sales experienced an uptick in October — but not enough to dispel the economic uncertainty.

Some industries are evading the consumer gloom. According to McKinsey, that includes electric vehicles, which are heavily subsidized by the state. Now, it looks like China's government wants to bring some of that magic to the smartphone market, which is already showing signs of domesticity:

• Data from a state-backed research group called the China Academy of Information and Communications Technology released last week said that foreign phonemakers are rapidly hemorrhaging market share in China. According to the data, shipments of foreign phones dropped 47.4% year-on-year in November. 
• Apple has been on a mission to prop up its China sales with rarely-offered discounts. Meanwhile China-based smartphone-maker Huawei steadily gained market share last year.

Watch Out: The newly broadened trade-in subsidy doesn't just apply to smartphones; tablets and smartwatches will be included as well. Apple might have to start busting out some discounts for Apple Watches soon.

Written by Isobel Asher Hamilton

Wall Street will face its first hurdle of 2025 later this week when the US jobs report drops on Friday. People who work on Wall Street face a more quotidian challenge starting this morning: getting there.

As of yesterday, America's largest city has congestion pricing. Entering Manhattan at 60th Street or below costs most drivers $9. At stake are billions on the bond market, billions in lost productivity, the future of New York's more-than-a-century-old transit system, and the tempers of a few passionate New Jerseyans.

Congestion Relief or Disbelief

The controversial new levy — which saw a June 2024 start date postponed by New York Governor Kathy Hochul, in a nod to the sting of inflation and an upcoming election, and was cut down to $9 from $15 when it was floated again in the fall — has been hit with at least 10 lawsuits to stop it. One of them, a last ditch effort by New Jersey officials, was rejected by a judge on Friday, though the Garden State's lawyers say they plan to appeal.

That set up the new congestion charge reality that most workday commuters heading to the busiest part of Manhattan will experience for the first time today. The program, helmed by the Metropolitan Transportation Authority (MTA), is supposed to make NYC traffic slightly more bearable and economically sensible:

• In a candidate for least surprising research finding of all time, analytics firm INRIX ranks New York traffic as the most congested on Earth, ahead of Mexico City, London, Paris, and Chicago. In 2023, drivers spent 101 hours on average sitting in traffic, more than twice the 42-hour national average — the idling cost $1,762 in lost wages and productivity for every driver, adding up to $9.1 billion in lost time for NYC.
• A Federal Highway Administration report found that the introduction of congestion zones in Stockholm, London and Singapore led to 10% to 30% increases in traffic speed to start. But in London, congestion has crept back up and geolocation company TomTom ranks the UK capital, not NYC, as the world's most congested, in spite of its two-decades-old congestion charge (the daily average congestion level in London rose to 45% in 2023, up from 37% in 2022, according to TomTom's comparison of driving there compared with free-flow traffic).

Whether there is actual congestion relief or not, for the MTA, the word is bond, $15 billion bond. That's how much the congestion charge — expected to generate about $900 million per year — will allow the agency to raise on the bond market to pay for a long list of much-needed transit repairs and upgrades. Given their underlying revenues, other MTA bonds have been highly rated by credit agencies. But there's a serious risk these bonds won't be issued — President-elect Donald Trump has pledged to kill the congestion charge — leaving the MTA back at square one looking to fill a major budget gap.

Taxi Tax: Drivers and owners of for-hire vehicles will not face a congestion charge. Instead, you will — $1.50 per Uber or Lyft trip and 75 cents per taxi trip will be paid by riders.

Written by Sean Craig