By Chairman and Chief Executive Officer Marc Cooper

Wall Street may be on the cusp of one of the most consequential initial public offering (IPO) waves in years. SpaceX is preparing what could be the largest IPO in history, potentially valuing the rocket maker and xAI owner at close to $1.75 trillion. OpenAI and Anthropic are also weighing listings that could command valuations measured in the hundreds of billions.​

The key question is not about size or spectacle. It is structural: Can a concentrated, space- and AI-led IPO wave extend beyond a handful of marquee names and meaningfully unlock the broader M&A market?​

The answer is more complicated than current market dynamics suggest.​

The Missing Market Signal​

To begin with, the private equity industry is sitting on a backlog of at least 13,000 companies that have been held for four years or more, according to McKinsey & Company. After nearly three years of constrained exits, sponsors are holding companies longer than planned—not because capital is unavailable, but because conviction is.​

The primary issue, though, is not liquidity. It is price discovery.​

​The problem runs deeper still for a significant subset of the PE backlog, which are companies built through serial acquisition into large, complex platforms. For a prospective buyer evaluating one of these assets today, the first question is not what it is worth now; it is who the buyer will be in five years.​

Without a functioning IPO market capable of absorbing sizable, multilayered businesses, the answer is not straightforward. When the exit is unclear, it often stifles appetite for the upfront acquisition, thereby stalling M&A activity altogether. The circularity is self-reinforcing: No viable exit path means no willing buyer today, which means no transaction, which means the backlog deepens further.​

That is where the IPO market may prove impactful for reenergizing M&A activity. It is both an exit alternative and it creates companies with public valuations that other assets can anchor to.​

When companies can credibly go public, there is more valuation guidance and buyer behavior shifts. The question “Do we have a compelling equity story?” has a clearer answer. That alone can reintroduce competitive tension into negotiations.​

Why Reopening Isn’t Recovery​

Historically, a pickup in IPOs was correlated with increasing M&A activity. Favorable macroeconomic conditions and rising CEO confidence would lead to a growing number of companies seeking to go public and increased dealmaking. The relationship, however, has broken down in recent years because the structure of the market has changed.​

Companies and their shareholders have opted to grow outside the public markets, remaining private for longer. The number of private equity firms, and their assets under management, has exploded. Financial sponsors have over $2.5 trillion in available cash reserves, providing plenty of capital to continue fueling private ownership. The increasingly onerous regulatory requirements and disclosures for public companies have also made raising money through the public markets less attractive.​

And while some larger, well-funded companies may take advantage of the opening IPO window and the improving macroeconomic conditions to go public, many middle-market PE-owned businesses may opt to remain private. A resurgence in IPOs will just be a signal of improving conditions, not a driver of change for PE-backed companies in its own right.​

Unlocking Sustainable Deal Flow​

For momentum to translate into a broader M&A recovery, several conditions need to align.​

Early IPOs will set the tone. If newly public companies trade well, they will reinforce valuation frameworks across both public and private markets.​

Stability in the public markets is also imperative. Volatility—whether driven by geopolitics or renewed stress in private credit—compresses investment horizons and pushes capital to the sidelines, undermining the durability of any reopening.​

Public markets don’t just create exit windows; they create buyers.​

Brad Jacobs built QXO as a public roll-up vehicle in building products distribution precisely because public capital gives it the balance sheet to pursue large assets at a scale few private funds can match. That model works best with access to public markets—and it is a category of buyer that simply disappears when IPO markets are closed.​

Most critically, the market must broaden beyond one hot sector. Today’s IPO pipeline is concentrated in AI and adjacent technologies, where growth is visible and capital is abundant. While there is abundant investor enthusiasm here, that concentration is not sufficient to unlock listings from other sectors.​

According to McKinsey & Company, activity is increasingly focused on a set of fast-growing “arena industries”—software, cloud computing, biopharma and industrial electronics. These sectors now account for roughly 40% of global deal value, up from just 7% two decades ago, and command significantly higher valuation multiples.

Biopharma proves this point. Large pharmaceutical companies are structurally compelled to acquire. Their internal pipelines alone cannot sustain growth. So they buy, consistently and at scale, making them the natural acquirer for virtually every VC-backed biotech that reaches late-stage development.​

That flywheel turns because the public markets give large-cap pharma the currency and the capital to transact continuously. It is not a coincidence that biopharma has remained one of the most active M&A sectors through cycles that have frozen deal flow elsewhere. The public market is not just the backdrop—it is the engine.

For a more holistic recovery, capital must rotate into less favored but more resilient sectors—business services, healthcare and other domestic industries that dominate the private equity backlog and are less susceptible to influences like tariffs or fuel prices. Without that broadening of capital deployment, IPO activity will remain top-heavy and disconnected from where the exit pressure actually sits.

Why Alignment Is The Catalyst

None of this precludes a broader M&A recovery. That will come eventually. But the key issue is not whether IPOs will unlock it. It is whether the underlying conditions required for both markets to function are beginning to take hold and, critically, to reinforce one another.

There are early indications of progress. But a deep M&A recovery cycle requires more.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Marc Cooper is a Member of the Forbes Finance Council and this article originally appeared on Forbes.com

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