Rising interest rates have dimmed the risk appetite of many investors. And it’s not just crypto, NFTs and speculative ‘growth’ stocks that have taken a hit. This calendar year also saw global IPO proceeds drop markedly. For example, in the U.S., IPO proceeds fell 95 per cent from 2021.
After a flood of IPOs in 2021, 2022 global IPO proceeds will be the lowest since 2016. The U.S. picture was far worse for 2022. U.S. IPOs will record their biggest drought in 31 years. It is 1990 that most recently matches the dearth of IPO action witnessed in 2022.
According to Refinitiv, in the U.S., just 74 companies have raised US$8 billion via IPOs so far in 2022, and the reason why we can write about it now, is because there is nothing major on the IPO calendar before 2023.
Globally, the 2021 year was the biggest IPO year ever, recording extraordinary volumes, with US$608 billion raised according to PWC’s report Global IPO Watch 2021[1]. After that record-breaking year, 2022 saw just 1,333 IPOs raising US$179.5 billion, down 45 per cent and 61 per cent by number of deals and proceeds, respectively, year-over-year according to EY (yes, PWC and EY’s numbers don’t reconcile).
PWC’s 3Q 2022 IPO Overview, reports 2022 YTD global Follow-On proceeds were US$249.9 billion from 1,700 transactions, down 70 per cent from the 4,105 transactions and US$823.0 billion raised in 2021.
Looking back at 2021 in the U.S., it is worth remembering the S&P 500 index ended that year at 4,779, which was its 70th all-time high over the course of 2021, and a record second only to 1995 when the S&P500 index recorded 77 highs.
According to PWC, 2021 U.S. equity issuances reached 1,115, more than double 2020. Proceeds were up to $346 billion, more than the previous three years combined, as companies looked to take advantage of ripe IPO conditions, including high valuations, low interest rates and strong investor appetite for equity.
All that changed in 2022.
Believe it or not, U.S. IPO proceeds fell 95 per cent from 2021, and according to Refinitiv, 2022 takings were no better than half of any year in the last 31 years. By volume, the number of U.S. IPOs was down 88 per cent and it was the lowest number of floats since the Global Financial Crisis in 2009.
Typically, companies float or raise capital when the prospects of a very high price are greatest – when the ‘ducks are quacking’ so to speak. The major collapse in P/E ratios over 2022, especially for ‘growthy’ stocks, saw most equity capital markets advisers miss out on a repeat of the bonuses they received for 2021.
As the IPO window opened at the beginning of 2022, interest rates commenced their march higher, and investors reconsidered several disappointing 2021 IPOs that ended that year below their issue prices.
Some suggest too many investors have been burned by Private Equity-backed floats of unprofitable ‘infinite growth’ and technology companies that have once again proven to only be “disruptive” to the financial security of their backers, and just another investment fad dashing the hopes of those who thought this time is different.
Memories are short, however, and IPOs will be back.
[1] https://www.pwc.com/gx/en/audit-services/ipo-centre/assets/pwc-global-ipo-watch-2021.pdf