Global IPO market endured meltdown in late 2022

12 January 2023 Consultancy.uk

In stark contrast to a stellar 2021, the global IPO market saw volumes collapse in the last 12 months. Proceeds also tumbled by 61%, according to a new report.

Research from Big Four firm EY suggests that after a record-breaking 12 months in 2021, the global IPO market took a sharp turn in the opposite direction in 2022. With high market volatility resulting from the approaching recession, record inflation and the war in Ukraine unsettling investors, 1,333 IPOs raised a total of $179.5 billion.

Year-on-year, this represents a dip of 45% in terms of deal volume, and a huge 61% decline regarding proceeds. With volatility rising quickly at the turn of the year, the average deal size shrank due – amid lowered valuations and poor stock market performance. As a result, the number of IPOs launched in 2022 fell quickly in 2022.

IPO activities adversely affected by high market volatility and other macroeconomic factors

The declines were just as pronounced across Europe, the Middle East, India and Africa. The EMEIA region saw IPO volumes fall by 53%, while proceeds tumbled by 55% - with 358 IPOs raising a combined $49.9 billion. The average was driven down by a calamitous period for Europe in particular. While the MENA region saw proceeds boosted by 115%, as large energy and related IPOs completed while gas prices boomed, Europe’s IPO activity was down 78%, as those same gas prices and geopolitical turmoil led to major economic uncertainty.

Paul Go, EY Global IPO Leader, commented, “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. As the pipeline continues to build, many companies are waiting for the right time to revive their IPO plans.”

Looking ahead, EY’s researchers suggest there is still “a strong IPO pipeline on the horizon” going into 2023. 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. But with tightening market liquidity, investors are more risk-averse.

This will mean the IPO market will change – even as it recovers, and firms will need to adapt to make the most of any recovery. Investors will likely favour companies that can demonstrate resilient business models in profitability and cash flows, while clearly articulating their ESG agendas. As it stands, this will challenge many companies as they are scaling back ESG spending to preserve their bottom lines – distancing themselves from potential investments.