As Companies Stay Private Longer, How Will IPOs and Employee Liquidity be Impacted?

Not that long ago, an IPO was considered an important and necessary milestone for a maturing private company looking to reach the next growth stage. However, the influx of capital into the private markets in recent years has given private companies greater flexibility to stay private longer—in some cases indefinitely. This trend, coupled with uncertainty in the public markets, has led more private companies to delay their IPO plans and reallocate the resources they would have spent on public listing and regulatory requirements toward continued innovation, growth, and business optimization.

But as companies stay private longer, they also must consider the impact to their equity compensation plan. According to our 2024 State of the Workplace Financial Benefits Study, 84% of employees believe equity compensation to be the most effective way to motivate a workforce. Employees work hard for their equity, which gives them a meaningful stake in the success of the business; however, some want and need the ability to liquidate some of that equity even when there's no IPO or exit event on the immediate horizon. As a result, some private companies are taking a proactive approach to liquidity. Additionally, 93% of private companies reported that the possibility of a company having a liquidity event is valuable to a prospective hiring decision¹.

Hence, some companies allow employees and investors to sell their equity to third-party buyers through one-off transactions; others let employees and investors borrow against their equity. However, the most popular mechanism for companies to grant partial liquidity to their participants is through organized liquidity programs where the company maintains control over who can participate and how much equity can be sold. To date, Morgan Stanley at Work has executed over 290 of these issuer-led liquidity events worth over $22 billion.

Despite a 30% year-over-year lift in IPO listings², the IPO market remains relatively quiet compared to prior years. With ongoing geopolitical events and market uncertainty, we expect more companies to sit on the sidelines and wait for IPO conditions to improve.

Meanwhile, pressure for employee liquidity will continue to build. Therefore, it is important that companies take the time to become “transaction-ready”. Transaction readiness means ensuring a company has the right people, processes, and systems in place to be able to execute a significant corporate action – such as an IPO or liquidity event – when the timing is right.  Proactively planning within 18 months of a liquidity event or IPO can help maintain greater control over timing and reduce the risk of complications while also help streamline daily operations beyond the transaction date.

Employee engagement and education has become increasingly important, especially for companies with no immediate plans to go public. To get the most out of their equity, employees must understand what it is worth, how it reflects their contribution to the business, and how it supports their overall financial well-being. Companies that effectively communicate and engage their shareholders on an ongoing basis can experience higher employee satisfaction and retention rates.

At the same time, employees may increasingly be looking to their employers for help with their specific financial challenges, especially in today's uncertain economic climate. Companies may have a significant opportunity to augment equity education with retirement planning and more holistic financial guidance. Offering these resources can send a powerful message about how a company continues to invest in its employees as it heads into the next stage of growth and beyond.