After a record-breaking 2021, the global initial public offering (IPO) market took a sharp turn in the opposite direction in 2022, EY said on Monday.

With only 1,333 IPOs raising $179.5 billion, IPO activity dipped 45 percent and 61 percent by number of deals and proceeds, respectively, year-over-year (YOY), according to EY Global IPO Trends 2022.

As the average deal size shrank due to lowered valuation and poor stock market performance, EY didn’t see as many large IPOs launch in 2022.

According to the report, throughout 2022, global IPO activity was impacted by increased market volatility and other unfavorable market conditions, along with the dismal performance of many IPOs that were 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.

Similarly, financial-sponsored IPO activity took a steep fall of 77 percent and 93 percent by number and proceeds, respectively.

Most special purpose acquisition companies (SPACs) listed from late 2020 are also reaching their two-year window, and they must now either find a target to merge or return the IPO proceeds to their investors.

While these numbers represent a stark decline from 2021, global IPO deals still turned up a 16 percent increase by number when compared to pre-pandemic 2019.

Despite the fact that market activity was mostly down across the board, EY said there were a few select industries and regions that did achieve modest success.

The technology sector continued to lead by volume accounting for 23 percent of deals, while the energy sector dominated by proceeds, accounting for 22 percent in 2022.

Among listed mega IPOs, which are defined as those that raised proceeds of more than $1 billion, the average proceeds in 2022 are 45 percent higher than those in 2021, on the back of strong valuation for the mega energy IPOs that took place this year.

Certain markets such as Mainland China, Middle East and some Southeast Asian countries have performed relatively well despite the significant global underperformance.

On regional IPO performance, EY said the Americas’ IPO activity sank to lows not seen since the peak of the great recession. It hits a 13-year low by volume and a 20-year low by value as markets were affected by volatility and policies undertaken to combat inflation.

Both number of IPOs and proceeds took a nosedive, with 130 deals raising $9 billion, down 76 percent and 95 percent, respectively, YOY. Not surprisingly, most of the Americas’ IPOs (69 percent) were on US exchanges.

Meanwhile, the Asia-Pacific IPO market had 845 IPOs totaling $120.6 billion in proceeds, taking the smallest hit from the global economic downturn and geopolitical tensions, and accounting for 63 percent of deals and 67 percent of funds raised globally in 2022.

Mainland China is on course to set another record in the highest annual capital raising by the close of 2022.

In Southeast Asia, EY said there were a total of 137 IPOs raising $6.5 billion in 2022, compared to 134 IPOs raising $13.2 billion in 2021.

Leading in performance were Indonesia (60 IPOs raising $2.2 billion), Thailand (32 IPOs raising $3.1 billion) and Malaysia (29 IPOs raising $700 million), followed by Philippines (8 IPOs raising $500 million) and Singapore (eight IPOs raising $40 million).

Notably the number of larger listings on Southeast Asia exchanges has been limited in 2022, but with reduced COVID-19 restrictions, there may be a return of larger IPOs in 2023, according to EY.

Europe, the Middle East and Africa (EMEIA) IPO activity, on the other hand, fell by 53 percent and 55 percent by number and proceeds, respectively, recording 358 IPOs raising $49.9 billion.

Even though Europe IPO activity was down 78 percent due to geopolitical turmoil, Middle East and North Africa (MENA) was up 115 percent by proceeds as it benefited from the large energy and other IPOs completed, coupled with the initiative rolled out by the government’s privatization plan.

EMEIA also delivered five of the top ten IPOs this year.

Looking ahead to 2023, EY said there is a strong IPO pipeline on the horizon.

Even though IPO activity will likely remain somber through at least the first quarter, favorable conditions seem to be set in place for the global IPO activities to regain greater momentum by the second half of the year.

For the IPO market to become more active again, there are a number of prerequisite conditions: positive sentiment and an uptick in stock market performance; lower inflation and ending of the interest rate hikes; easing of geopolitical tensions; and diminished pandemic effects on the global economy.

According to EY, many prospective IPO companies are still going to take the “wait-and-see" approach, holding out for the right window.

For now, investors will focus more on a company’s fundamentals, such as revenue growth, profitability and cash flows, over just growth projections.

As there is a positive correlation between companies’ post-IPO share price performance and the communication of their environmental, social and governance (ESG) strategies, investors will also increasingly be looking at the company’s ESG agenda .

“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,” said Paul Go, EY Global IPO Leader.

“As the pipeline continues to build, many companies are waiting for the right time to revive their IPO plans,

“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 added.

EY: Global IPO market continues to plummet as we round out Q3; Indonesia’s most active Asean exchange YTD