The IPO Market is on Pause but Will Bounce Back
By Michael Dubois, Head of Corporate at VG Global Holdings
The global markets have seen a slowdown in initial public offerings in the first quarter of 2023, and this is likely to continue in the coming months, as many companies have decided to wait out the effects of a combination of volatile stock markets, higher interest rates and inflation, and uncertainty around the ongoing banking crisis. Only 299 companies around the world have gone public over the past three months, which is 8% less than at the same time last year, while funds raised from those listings have fallen by a staggering 61% year-on-year, to $21.5 billion.
The unexpected inflation and interest rate outlook, in addition to the latest turmoil in the global banking system, which has resulted in emergency interventions for Credit Suisse, Silicon Valley Bank, Signature Bank and First Republic Bank, has poured cold water and dampened the mood of an already stuttering global IPO market, despite having started with somewhat of a euphoric outlook at the beginning of the year. Companies are now holding out for the stock markets to stabilize and rebound before listing, and there is a backlog of firms that were interested in going public.
In Mainland China, it is estimated that there are around 800 companies waiting in the pipeline, but many firms globally are biding their time, particularly as they’re discouraged by a relative lack of returns for the companies that did hit the market in recent months, most of which actually reported a loss. This delay will probably last until at least the summer, but things should turn around later this year as peaking inflation, the softening of energy prices, and the rebound of mainland China’s economy, should help investors regain confidence.
SPAC IPO activity is likely to be muted in the near term as market conditions remain challenging, IPO activity in the Americas during the 1st Quarter was well below levels seen in comparable periods over the last decade, while the Asia Pacific IPO market, which accounted for 59% of global IPO deals, saw activity decline by 6% by number and 70% by proceeds year-over-year with 175 deals and $12.7 billion in proceeds during the quarter. Finally, activity in Mainland China and Hong Kong was quieter than usual, with more mainland Chinese companies expected to list overseas in the coming quarters, with many primed to debut on the US and Swiss stock exchanges.
The global market should recover in the second half of 2023, because it is primed for a rebound, especially since governments around the world are trying to promote IPOs in their respective jurisdictions, which will eventually spur a revival. Once there is evidence of a more stable market with higher certainty, investor confidence will return and the best thing about it is that now companies will go public at more modest valuations, and only when they are absolutely certain of their fundamentals and assured of success. This is good news for investors since any IPOs which go ahead in the near future will have a much more likely upward trajectory than they do at the moment.