The initial public offering (IPO) market is continuing to experience an “unwelcome environment” in the 1Q2023, following the lacklustre IPO market in 2022.
The first quarter of 2023 saw a total of 299 IPOs raising US$21.5 billion ($28.56 billion) in proceeds, representing an 8% and 61% decrease y-o-y, respectively.
According to EY’s Global IPO Trends report for the 1Q2023, the quarter was “another down period” on the back of interest rate increases, a lukewarm stock market, an inflationary environment and unexpected turbulence in the global banking industry.
Technology companies, which were a mainstay in IPO activities in recent years, also saw declines in their valuations, leading to the overall declines in IPO volumes and proceeds. The turmoil in the cryptocurrency markets and global banking industry did not help either, adds the report.
Though technology firms continued to deliver the higher number of IPO deals, its average transaction size fell behind the energy sector, which had four of the top 10 listings in the 1Q2023. In terms of sectors volume, the energy sector stood in sixth place, behind industrials, consumer, materials as well as health and life sciences. By IPO proceeds, the energy sector came in top, while the technology sector stood in third place, behind industrials.
IPO activity for special purpose acquisition companies (spacs) was one of the lowest in recent years after the spacs was one of the markets’ hottest trends in 2021.
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To be sure, spac IPO activity hit a six-year low in terms of volume, with proceeds down to levels not seen since 2016. According to EY, investors’ appetite for spacs were dampened due to high liquidation as well as the poor post-listing performance of de-spacs.
“As market conditions remain challenging and many promoters of spacs listed in early 2021 need to complete or unwind their transactions, spac IPO activity is likely to be muted in the near term,” notes EY in its April 5 release.
IPOs by regions
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In the Asia-Pacific (APAC) region, IPO volumes fell by 6% y-o-y to 175 deals while proceeds plunged by 70% y-o-y to US$12.7 billion. Despite the declines, the region’s IPO market made up 59% of IPO deals globally.
The lower figures were attributed to the “quieter-than-usual” Chinese and Hong Kong markets, though China’s IPO figures were said to be on a “healthy projected track” with its IPO proceeds accounting for 40% of the world’s proceeds.
During the quarter, China’s Shenzhen Stock Exchange (SZSE) saw the highest number of proceeds at US$4.7 billion, representing 22% of the global IPO proceeds. The country’s Shanghai Stock Exchange (SSE) came in second with US$4.3 billion of proceeds representing 20% of global IPO proceeds.
Overall, the region took a “wait and see” attitude with investors waiting for further indicators of market recovery.
In Southeast Asia, IPO volumes rose by 75.9% y-o-y to 51 deals raising US$1.4 billion in proceeds, which was up by 40% y-o-y. Within the region, Indonesia was the most active with 30 IPOs raising US$828 million. Thailand, in second place, saw 10 IPOs raising US$322 million. Malaysia was third with 10 IPOs raising US$238 million while Singapore was in fourth place with just one IPO raising US$15 million.
Activity in the Americas was “in line” with 1Q2022’s figures but stood “well below” the levels seen in similar periods over the last decade. The region saw 40 deals raising US$2.6 billion in proceeds during the 1Q2023, up 11% and 9% y-o-y respectively.
In the US, there were 31 IPO deals, eight of which were in excess of US$50 million. US’s NASDAQ saw 29 IPO deals representing 10% of global IPO volumes. The same exchange saw IPO proceeds of US$2.1 billion, or 10% of global IPO proceeds. Notably, Canada raised over US$100 million in proceeds after seeing its biggest IPO since May 2022.
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“Even though IPO activity levels have been on the lighter side, we have begun to see some early positive developments in the areas of inflation, interest rates, valuations and market volatility, which could set the stage for a potential recovery in the Americas IPO market,” says EY.
In Europe, the Middle East and Africa (EMEA), IPO activity fell by 19% y-o-y to 84 deals with proceeds declining by 36% y-o-y to US$6.2 billion. This was due to many companies withdrawing or postponing their IPOs due to market conditions, notes EY.
India, which EY classifies as a region, had the largest number of IPOs in EMEIA, though it saw an 83% decline in proceeds. India’s national stock exchange (NSE) and Bombay Stock Exchange (BSE) saw the highest number of IPOs by volume with 42 deals representing 14% of global IPOs.
Globally, the Middle East was the only region with a mega IPO.
“Despite positive economic indicators, sentiment remains cautious, with investors being selective in a buyers’ market, seeking profitable and sustainable business cases,” says EY.
“Amid persistent macroeconomic and geopolitical uncertainty, exacerbated by stress in the global banking system, IPO windows are fleeting and funding conditions are getting tougher, with investors prioritising 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 meet the challenges and opportunities of going public,” says Paul Go, EY global IPO leader.
‘Glimmer of hope’ seen in 2Q2023
In its outlook for the 2Q2023, EY sees “a glimmer of hope” as well as “light on the horizon” for IPOs.
In the team's view, the backlog for IPOs is “continuing to build” as companies are looking to hold out for better stock market conditions before listing.
“In a highly unpredictable and persistent inflationary environment, investors who were previously oriented toward funding growth and potential are now more focused on the path to profitability and cash flows. Collaboration between governments, including cooperation and stock-connect programs, along with investor appetite for diversity, could also lead to a wave of dual listings and cross-border deals this year,” predicts EY.
“Businesses will need to navigate the high-cost and reduced liquidity environment for a little longer. Once there is evidence of a more stable market with higher certainty, investor confidence should return, and prominent companies that had postponed IPO plans may restart, albeit at more modest valuations,” it adds.
