2021 was a banner year for initial public offerings (IPOs), with global deal volumes jumping 64% and proceeds rising 67% year-on-year.
A new report from multinational professional services network EY reveals that a turn in the pandemic tide — led by vaccine rollouts and economic rebounds — fuelled demand for IPOs in the last 12 months.
The final quarter was particularly fruitful, with IPO deal numbers the most active on record since 2007’s fourth quarter.
But EY warns the market will face headwinds in the new year, with uncertainty surrounding the new COVID variant and growing inflation risks threatening to topple the stellar IPO run.
Economic rebound buoys IPO market
As the world started to get a handle on the COVID-19 pandemic, IPOs flourished in 2021.
“In the face of the uncertain environment that 2021 promised, the global IPO market had an exceptional year, breaking records by IPO volume and proceeds consistently into the fourth quarter,” the EY report stated.
EY Global IPO leader Paul Go said the last 12 months represented the most active year for the IPO market in the past two decades.
“COVID-19 vaccine rollouts and rolling liquidity from government stimulus programs provided strong tailwinds,” he explained.
“In quarter four of 2021, however, the winds shifted with the surfacing of the COVID-19 Omicron variant, continuing geopolitical tensions, slowing IPO activity and increased market volatility.
“Whether or not IPO-bound companies press pause or forge ahead in 2022, they will need to satisfy investor demands for resilient growth strategies and well-articulated environmental, social and governance (ESG) plans.”
The year that was
Overall, 2021 saw 2,388 IPO deals raise US$453.3 billion in proceeds, a 64% and 67% respective increase year-on-year.
All global markets experienced overall increases by both IPO volume and proceeds, but Europe, the Middle East, India and Africa (EMEIA) exchanges produced the highest growth, seeing a 158% increase by number of IPOs to 724 and a 214% increase by proceeds to US$109.4 billion.
The Americas remained hot as well, ending the year with 528 IPOs, raising US$174.6 billion in proceeds — an 87% and 78% increase, respectively.
The Asia-Pacific region experienced relatively modest growth, resulting in 1,136 IPOs — a 28% increase — and raising US$169.3 billion in proceeds, marking a 22% jump.
While this year’s market broke records, old patterns continue to emerge.
Globally, the technology sector saw the highest number of IPOs (611 all up) for the sixth consecutive quarter and raised the highest proceeds — US$147.5 billion — for the seventh consecutive quarter.
Health care raised the next highest number of IPOs by volume and proceeds, with 376 IPOs raising US$65.4 billion in the process.
Industrials trailed close behind, with 310 IPOs raising US$63.1 billion for the sector.
The year to come
As a new quarter approaches, the EY report warns investors to prepare for headwinds in the IPO market but recommends they capitalise on the current high valuations.
“Looking ahead to the new year, both headwinds and tailwinds are in sight, which will likely impact IPO activity,” it stated.
“A combination of geopolitical tensions, inflation risks and new waves and variants of the ongoing COVID-19 pandemic that hamper full economic recovery are all at play.
“Despite all of this, relatively high valuations and market liquidity are for now keeping the IPO window open in 2022.
“IPO candidates can expect higher market volatility and should therefore remain flexible with a plan B in place to meet financing needs in case the IPO timetable is delayed.”
Global IPO leader Go concluded: “While the positive momentum of 2021 is expected to carry into 2022, it will be imperative for IPO-bound companies to adopt a resilient and flexible strategy that is able to adapt to shifting market conditions, evolving regulations and geopolitical tensions.”
Shaw and Partners’ Davide Bosio is also on watch for a slowdown in IPO activity in the year ahead.
In a December interview with Proactive’s Ky Chow, the Shaw and Partners WA state manager and director of corporate finance said the market could slow from fatigue after a banner year.
Hear more from Bosio on his market outlook for 2022 in the video below:
