After a record-breaking 2021, the global initial public offering (IPO) market took a sharp turn in the opposite direction in 2022, according to analysts at EY.
In a report commenting on shifting IPO market trends in 2023, the analysts noted that 1,333 IPOs globally raised US$179.5 billion in 2022, representing a decrease in volume of 45% with proceeds down 61% year-over-year.
Compared to pre-coronavirus pandemic times, the number of deals is up 16%, however, with Asia Pacific accounting for 67% of global IPO proceeds, the analysts added.
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They noted that global IPO activity in 2022 was impacted by increased market volatility and other unfavourable market conditions, along with the dismal performance of many IPOs listed since 2021.
“Amid an environment defined by higher inflation and rising interest rates, investors have spurned new public companies and turned to less risky asset classes,” they said.
The EY analysts highlighted a few select industries and regions that did achieve modest success. The technology sector continued to lead by volume accounting for 23% of deals, while the energy sector dominated by proceeds, accounting for 22% in 2022, they said.
The analysts added that certain markets such as Mainland China, the Middle East and some ASEAN counties had performed relatively well despite the significant global underperformance.
In the report, EY Global IPO Leader Paul Go commented: “A record year for IPOs in 2021 gave way to increasing volatility from rising geopolitical tensions, inflation and aggressive interest rate hikes.”
“Weakened stock markets, valuations and post-IPO performance have further deterred IPO investor sentiment,” he added.
2023 outlook
For the IPO market to become more active again, the EY analysts said this would require positive sentiment and an uptick in stock market performance; lower inflation and the end of interest rate hikes; the easing of geopolitical tensions; and diminished COVID-19 pandemic effects on the economy.
“Many prospective IPO companies are still going to take the ‘wait-and-see’ approach, holding out for the right window,” they said.
The analysts added that investors would be looking at a company’s fundamentals, such as revenue growth, profitability and cash flows, over just growth projections.
They said that there is a positive correlation between companies’ post-IPO share price performance and the communication of their environmental, social, and governance (ESG) strategies, meaning investors will increasingly be scrutinizing companies’ ESG agendas.
“As pipeline continues to build, many companies are waiting for the right time to revive their IPO plans,” Go said.
“Still, with tightening market liquidity, investors are more risk-averse and favor companies that can demonstrate resilient business models in profitability and cash flows, while clearly articulating their ESG agendas," he concluded.
Contact the author at emily.jarvie@proactiveinvestors.com
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