Global IPO activity is down 45% as higher rates crush deal activity

It’s been a bad, really bad year for private companies eager to debut on US and global stock markets.

Through December 14, 2022 saw just 1,333 IPOs globally raising $179.5 billion, representing a 45% drop in listings that raised 61% fewer dollars compared to 2021.

“Amid an environment defined by higher inflation and rising interest rates, investors have turned down new publicly traded companies and moved to less risky asset classes,” said Paul Go, EY’s global IPO leader, in a report released this week. has been published.

In the Americas, IPO activity fell in 2022 to levels not seen since the global financial crisis of 2008-2009.

This year, just 130 IPOs raised $9 billion, a lowest volume in 13 years and a lowest value in 20 years, according to EY data. Those numbers also represented declines of 76% and 95% from last year in volume and revenue, respectively.

Still, global IPO activity was 16% higher than in 2019, even with this year’s decline from record levels. In 2021, more than 2,400 IPOs were completed, raising more than $450 billion.

“A record year for IPOs in 2021 gave way to increasing volatility due to rising geopolitical tensions, inflation and aggressive rate hikes,” said Go. “Weakened equity markets, valuations and post-IPO performance further deterred sentiment among IPO investors.”

Public offerings backed by financial sponsors such as private equity firms also saw a sharp decline, with the number of deals dropping by 77%, while yields collapsed by 93%.

The risk averse mood has also put a strain on the merger pipeline, with many dedicated acquisition companies – or SPACs, raising capital from investors hoping to find a takeover target later – approaching their two-year window to find targets after launching in 2020 .

One of the notable names that have halted plans to go public this year is delivery platform Instacart, which the New York Times reported earlier this year has halted a planned IPO process. Instacart declined to comment on the IPO.

As sentiment around speculative parts of the market turned south this year amid economic uncertainty and tighter financial conditions, investors have largely shunned new publicly traded companies.

“Many would-be IPO companies will still take the ‘wait-and-see’ approach and look for the right window,” EY said. “For now, investors will focus on a company’s fundamentals, such as revenue growth, profitability and cash flows, rather than just growth projections.”

The collapse in IPO interest also comes in a year in which M&A demand cooled, with third-quarter deal volume down 58% from last year, data from S&P Global Market Intelligence showed.

04/11/2021: The logo of the grocery delivery app Instacart on a smartphone screen. (Photo Illustration by Davide Bonaldo/SOPA Images/LightRocket via Getty Images)

There were still some bright spots in a bad year for deal activity, as technology IPOs continued to lead in terms of volume, accounting for nearly a quarter of deals. The energy sector led the way in terms of returns, accounting for more than a fifth of the money raised through IPOs in 2022.

Globally, mega IPOs, or those that raised more than $1 billion, were 45% higher in 2022 than in 2021, though largely impacted by some mega IPOs.

EY said IPO activity is likely to improve in the new year with more favorable terms for later in 2023, but the first quarter could be dismal before activity picks up again in the second half of the year.

“As the pipeline continues to expand, many companies are waiting for the right time to revive their IPO plans,” Go said in a note. “Yet, with tightening market liquidity, investors are more risk averse and prefer companies that can demonstrate resilient business models in terms of profitability and cash flows while clearly articulate their ESG agendas.”

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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