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Global IPOs: Seeking signs of stabilization

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Global IPO markets faced unexpected headwinds in 2022, prompting some to postpone their deals until the dust settles, but the market remains resilient

Resetting expectations

It was clear in the opening months of 2022 that the winds had changed for the global IPO market as compared to the prior year, a rocky path that continued throughout the year and into the first quarter of 2023, but with a few notable bright spots

As we reported in last year's issue of the Global IPO Report, inflation concerns were starting to mount in early 2022 and investors were beginning to accept the prospect that central banks would need to step in to rein in demand. Against that backdrop, Russia invaded Ukraine, further disrupting already frayed supply chains and sending global energy prices soaring. This put further upward pressure on inflation and interest rates have been rising almost vertically since then.

None of this has been kind to IPO sentiment. In 2022, total global IPO value, including SPACs, came in at US$170.7 billion, a decline of 72 percent year-on-year. Excluding SPACs, the total was US$153.9 billion, down 65 percent year-on-year. While 2021 had been a record-breaking year and was unlikely to be repeated under the best of circumstances, these were the lowest global IPO value totals stretching back to 2016.

This continued into Q1 2023, with only US$26 billion in IPOs, including SPACs, down 53 percent year-on-year. Excluding SPACs, this total came in at US$25 billion in IPOs, 42 percent lower than Q1 2022.

Having said that, some context is helpful. Although SPAC deal value declined as compared to 2021, 2022 levels were still well above levels seen prior to the pandemic and the emergency monetary stimulus that supercharged the markets. Banks and investors may have balked at the SEC's promise of stricter regulation, but SPACs have nonetheless cemented themselves as a credible strategy for swiftly accessing public market fundraising.

Moreover, global IPO volume held up surprisingly well despite the macro and market volatility. Of note, larger ticket listings have been concentrated on non-US exchanges, with the Asia-Pacific (APAC) region proving to be comparatively robust, and the Middle East making notable moves on the IPO stage.

In the first quarter of 2023, a positive sentiment was settling over the markets and there were high hopes that a more stable base was being formed from which companies could soon begin to launch their IPOs. In March, however, cracks began to show following the collapse of Silicon Valley Bank, as liquidity issues emerged at high-profile banks in both the US and Europe. Investors watched to see whether any more shoes might drop, as interest rates continued to climb in response to inflationary pressure. Nonetheless, there is cause for cautious optimism about what the remainder of 2023 may hold, as disinflationary signals begin to emerge.

Global IPO markets pause to take a breath

Inflation concerns, rising interest rates and the specter of war cast a more sober tone over equity markets in 2022 and through Q1 2023, throttling appetite for IPOs in most regions—but not all

Stock market graph

Tech continues to dominate

Last year was a volatile 12 months for the tech sector, with a steep sell-off in growth stocks and a drop in IPOs—but, although the sector was down, it was by no means out

Birds eye view of skyscrapers

Asia-Pacific's IPO market outshines

No region demonstrated more resilience than APAC in 2022, with the largest deal globally, the greatest total IPO value and volume, and the smallest year-on-year declines

Stock exchange sign and building

IPO hopefuls digest forthcoming regulatory changes

The US Securities and Exchange Commission has plans to regulate SPACs more closely and mandate ESG reporting—sponsors and companies should pay close attention

Birds eye view of One World Trade Center

Braving unsettled waters

Recent months have been exceptionally quiet, especially for the North American and EMEA IPO markets, as the bears have taken the upper hand—and investors and issuers are now hoping for a more active second half in 2023

View of skyscrapers just right before sunset
View of skyscrapers just right before sunset

Braving unsettled waters

Recent months have been exceptionally quiet, especially for the North American and EMEA IPO markets, as the bears have taken the upper hand—and investors and issuers are now hoping for a more active second half in 2023

3 min read

As we signaled in last year's Global IPO Report, elevated inflation and interest rates coupled with lowered economic growth prospects and the situation in Ukraine remain a concern in 2023. More than any specific factor, companies and investors are faced with a pervading sense of uncertainty.

Then, in March 2023, a liquidity crisis surfaced in the US and European banking sectors, an unintended consequence of the rapid rate of change in interest rates throughout 2022, unnerving investors and hitting financial services stocks especially hard.

Everything hinges on how sticky inflation proves to be and, by extension, how high rates will need to go and for how long. Greater clarity and certainty around these variables will have a direct impact on investor confidence and companies' appetite to brave the public markets.

For these reasons, the first half of 2023 looks set to be quiet. Any recovery is likely to be gradual and tentative. Typically, secondary deals tend to dominate during weaker economic periods and IPOs lead when growth improves. Certainly, 2023 will not be a repeat of 2021, but with valuations having cooled, ample capital sidelined and inflation slowing down, there are signals that hold promise for what may be in store for the second half of the year.

Pent-up pipelines: Market volatility kept many IPO prospects from realizing their plans in 2022. If inflation is gradually contained, these pent-up pipelines may deliver the necessary supply to bring activity back online in the second half of the year. Notably, Europe saw a strong equity rally in Q4 last year and there were echoes of this rebound in the US. Meanwhile, India's stock markets have shown impressive resilience. A continued recovery in market confidence and successful secondary issuance could pave the way for a steady stream of IPOs coming to market.

Narratives will count for everything: Whether it's energy transition, which is seeing huge federal support in the US, or artificial intelligence platforms with demonstrable use cases, solid narratives have never been more important. Markets will welcome businesses that have buyable equity stories that play into long-arcing themes such as sustainability and industry disruption. Management teams in all sectors need to have honest and realistic conversations about what their companies do and whether markets will welcome their issuances, and if so, at what price.

Investor scrutiny remains high: In 2021, a wide variety of companies could float, and at extraordinary valuations. Now, investors will be paying close attention to company financials, present-day earnings and the robust nature of their growth potential. Companies should expect due diligence to go deeper and be ready to explain how the proceeds of an IPO will be used to bridge growth and take the business to the next stage of its development. It will be no use raising money for the sake of it—investors will be asking, "Why now?"

APAC to hold its top position: With the exception of 2020 and 2021, the APAC region has historically contributed more deal value than either North America or EMEA. Given the sharp decline seen last year, particularly in the US, it's reasonable to expect a US market recovery in 2023 compared to the prior year, but doubtful that this will put North America ahead of APAC. A slower increase and possible plateauing of the Fed rate in H2 should see the US dollar stabilize from its epic rally. This could give emerging markets room to breathe and make foreign equities more attractive by reducing forex risk.

Patience is a virtue: Above all, companies need to take their time. Sentiment can turn on a dime. As author Joyce Meyer once said: "Patience is not the ability to wait but the ability to keep a good attitude while waiting." Management teams should use the current environment to lay the foundations for their planned IPOs such as improving corporate governance, internal controls and reporting readiness, ultimately putting their businesses on a solid footing for when the markets are more welcoming.

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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.

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