In just one quarter of 2023, it was pretty much the same for the stuttering global IPO market. With a total of 299 IPOs raising $21.5 billion, down 8% and 61% year-on-year (YOY), Q1 was another soft patch amid rate hikes, a subdued stock market, stalled inflation and unexpected global banking industry turmoil.
Despite this ongoing uncertainty surrounding the economic and geopolitical environment, the IPO pipeline continues to build and hopes remain for a turnaround later this year. These and other findings were published in the EY Q1 2023 Global IPO Trends.
Tech companies, which have been a mainstay of IPO activity in recent years, have seen some sharp falls in valuations, and the turmoil in the crypto markets and global banking industry hasn’t helped. While technology continued to lead in IPO volume, four of the top 10 listings in Q1 2023 were in the energy sector.
High liquidation and poor post-listing performance by De-SPACs dampened investor appetite for new IPOs. This quarter, SPAC’s IPO activity was among the lowest in years; it hit a six-year low in terms of volume, with revenue also falling to levels not seen since 2016. As market conditions remain difficult and many promoters of SPACs listed in early 2021 need to complete or reverse their transactions, SPAC IPO activity is likely to be muted in the short term.
Regional overall performance: The initial euphoria has evaporated by the end of the quarter
IPO activity in the Americas was in line with the first quarter of 2022, but was well below levels for comparable periods over the past decade, ending the quarter with 40 deals and $2.6 billion in proceeds, up 11%, or 9 % equals , YES. There were 31 deals on US exchanges, eight of which were over $50 million. Meanwhile, Canada saw its largest IPO since May 2022, raising more than $100 million in proceeds. Although IPO activity has been on the lighter side, we have started to see some early positive developments in inflation, interest rates, valuations and market volatility that could set the stage for a potential recovery in the American IPO market.
Although the Asia-Pacific IPO market accounted for 59% of global IPO deals, its activity declined by 6% by number and 70% by revenue, with only 175 deals and $12.7 billion in revenue year-on-year. USD recorded for the quarter. Despite the lifting of almost all anti-pandemic measures earlier this year, the mainland China market has been a little quieter than usual, but it is on a healthy forecasted path and still accounted for more than 40% of all global IPO proceeds. Hong Kong, also normally a powerhouse for new listings, was unusually quiet. Overall, the Asia-Pacific region took a wait-and-see stance as investors keep their powder dry and look for further indicators of a market recovery.
As many companies withdrew or postponed their IPO filings due to market conditions, EMEIA IPO activity declined 19% by number and 36% by revenue year-on-year, registering 84 IPOs with revenue of $6.2 billion for Q1 . India had the most IPOs in EMEIA as a region, although there was a sharp 83% drop in revenue. Globally, the Middle East was the only region with a mega IPO. Despite positive economic indicators, sentiment remains cautious as investors are selective in a buyer’s market, looking for profitable and sustainable business models.
Paul Go, EY Global IPO Leader: “Amid continued macroeconomic and geopolitical uncertainty, exacerbated by stress in the global banking system, IPO windows are fleeting and funding conditions are tightening, with investors prioritizing value over growth. IPO-bound companies need to focus on building sustainable businesses with strong fundamentals to be well-positioned in a volatile environment and face the challenges and opportunities of an IPO.”
Outlook Q2 2023: a glimmer of hope
Despite the unforgiving economic and geopolitical backdrop, there is light on the horizon with inflation peaking, falling energy prices and mainland China’s economy recovering. However, the backlog for IPOs continues to build as companies wait for stock markets to stabilize and recover before listing.
In a highly unpredictable and persistently inflationary environment, investors previously focused on financing growth and potential are now more focused on the path to profitability and cash flows. Cooperation between governments, including collaborative and stock connect schemes, and investor appetites for diversity could also fuel a wave of secondary listings and cross-border deals this year.
Companies still have to find their way in the environment of high costs and low liquidity for a little longer. Once there is evidence of a more stable market with greater certainty, investor confidence should return and prominent companies that had postponed IPO plans could restart, albeit at more moderate valuations.
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