Global IPO market registered a total of 299 initial public offerings (IPOs) raising $21.5 billion in the first quarter of 2023, an 8 percent and 61 percent decrease year-over-year, respectively, said Ernst & Young (EY) on Monday.
In its latest Global IPO Trends 1Q2023 report, EY said the first quarter was another down period amid interest rate rises, a lukewarm stock market, entrenched inflation and unexpected global banking industry turbulence.
Despite this ongoing uncertainty around the economic and geopolitical environment, it said IPO pipeline continues to build and hope remains for a turnaround later this year.
According to EY, technology companies, which have been a mainstay of IPO activity in recent years, experienced some sharp declines in valuations and the turmoil in the crypto markets and the global banking industry has not helped.
While technology continued to lead in IPO volume, four of the top ten listings in the first quarter of 2023 were in the energy sector, it said.
EY also noted that high liquidation and poor post-listing performance of de-special purpose acquisition companies (SPACs) dampened investors’ appetite for new IPOs.
This quarter, SPAC IPO activity was one of the lowest in recent years, hitting a six-year low in terms of volume, with proceeds also down to levels not seen since 2016.
As market conditions remain challenging and many promoters of SPACs listed in early 2021 need to complete or unwind their transactions, EY said that SPAC IPO activity is likely to be muted in the near term.
Meanwhile, the Americas IPO activity was in line with the first quarter of 2022, but it was well below the levels seen in comparable periods over the last decade.
The American IPO market finishing out this quarter with 40 deals and $2.6 billion in proceeds, up 11 percent and up 9 percent, respectively, according to EY.
On US exchanges, there were 31 deals, eight of which were in excess of $50 million.
Canada, on the other hand, saw its biggest IPO since May 2022, raising more than $100 million in proceeds.
Even though IPO activity levels have been on the lighter side, EY has 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.
According to EY, the Asia-Pacific IPO market accounted for 59 percent of global IPO deals.
Asia Pacific IPO activity proceeds plummeted 70 percent year on year to $12.7 billion in the first quarter, Asia Pacific IPO number also declined 6 percent year on year to 175 deals for the quarter.
Despite the lifting of almost all its pandemic control measures earlier this year, EY said the China market was a bit quieter than usual.
However, it said the China is on a healthy projected track and still accounted for more than 40 percent of all global IPO proceeds.
Meanwhile, Hong Kong, also usually a powerhouse for new listings, was uncharacteristically quiet during the quarter, according to EY.
Overall, EY said Asia-Pacific, took a “wait and see” attitude, as investors keep their powder dry and look for further indicators of market recovery.
Across Southeast Asia, IPO activity appeared encouraging, with 51 deals raising $1.4 billion in proceeds, up from 29 IPOs raising $1 billion in the first quarter of 2022, according to EY.
Indonesia was the most active in the first quarter of 2023, with 30 IPOs raising $828 million, followed by Thailand (ten IPOs raising $322 million), Malaysia (ten IPOs raising $238 million) and Singapore (one IPO raising $15 million).
As many companies withdrew or postponed their IPO filings due to market conditions, Europe, the Middle East, India, and Africa (EMEIA) IPO activity fell 19 percent by numbers and 36 percent by proceeds year on year, recording 84 IPOs raising $6.2 billion for the first quarter, according to EY.
India as a region had the largest number of IPOs in EMEIA, even though it had a sharp decline of 83 percent in proceeds.
Globally, EY said the Middle East was the only region with a mega IPO.
Despite positive economic indicators, EY said sentiment remains cautious, with investors being selective in a buyers’ market, seeking profitable and sustainable business cases.
“Amid persistent macroeconomic and geopolitical uncertainty, exacerbated by stress in the global banking system, IPO windows are fleeting and funding conditions are getting tougher,” said Paul Go, EY Global IPO Leader.
“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 meet the challenges and opportunities of going public,” he added.
Despite the unforgiving economic and geopolitical backdrop, EY said there is light on the horizon, with peaking inflation, energy prices softening and the rebound of China’s economy.
However, it said the backlog for IPOs is continuing to build as companies are holding out for the stock markets to stabilize and rebound before listing.
In a highly unpredictable and persistent inflationary environment, EY said investors who were previously oriented toward funding growth and potential are now more focused on the path to profitability and cash flows.
It said 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.
EY also said that 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, said EY.
Global IPO market went from record-breaking to full-on abating, says EY