Global IPO market to gain momentum in 2H23


IPO activities around the world are expected to pick up steam by the second half of this year (2H23) but are dependent on a number of preconditions, according to EY Global IPO Trends 2022.

Looking ahead to 2023, EY said there is a strong IPO pipeline on the horizon, even though IPO activity will likely remain sombre through at least the first quarter 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,” it said.

It noted that many prospective IPO companies are still going to take the “wait-and-see” approach, holding out for the right window.

For now, it said that investors will focus more on a company’s fundamentals, such as revenue growth, profitability and cashflows, 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,” it added.

EY Global IPO leader Paul Go remarked that the record year for IPOs in 2021 gave way to increasing volatility from rising geopolitical tensions, inflation and aggressive interest rate hikes. He added that weakened stock markets, valuations and post-IPO performance had further deterred IPO investor sentiment.

“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 favour companies that can demonstrate resilient business models in profitability and cashflows, while clearly articulating their ESG agendas,” he said.

After a record-breaking 2021, EY said, the global IPO market took a sharp turn in the opposite direction in 2022.

With only 1,333 IPOs raising US$179.5 billion (RM786.21 billion), IPO activity dipped 45% and 61% by number of deals and proceeds, respectively, year-on-year (YoY). As the average deal size shrank due to lowered valuation and poor stock market performance, EY said it didn’t see as many large IPOs launched in 2022. 

Throughout 2022, EY said the global IPO activity was impacted by increased market volatility and other unfavourable 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, it said investors have spurned new public companies and turned to less risky asset classes. 

Similarly, it noted that financial sponsored IPO activity took a steep fall of 77% and 93% 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% increase by number when compared to pre-pandemic 2019,” it stated.

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

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

Among listed mega IPOs, which are defined as those that raised proceeds of more than US$1 billion, the average proceeds in 2022 were 45% 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 South-East Asian (SE Asian) countries had performed relatively well despite the significant global underperformance, it said.

EY noted that the America’s IPO activity sank to lows not seen since the peak of the great recession. It hit 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 US$9 billion, down 76% and 95%, respectively, YoY. Not surprisingly, most of the Americas’ IPOs (69%) were on US exchanges.

The Asia Pacific IPO market meanwhile had 845 IPOs totalling US$120.6 billion in proceeds, taking the smallest hit from the global economic downturn and geopolitical tensions, and accounting for 63% of deals and 67% of funds raised globally in 2022. Mainland China was on course to set another record in the highest annual capital raising by the close of 2022.

In SE Asia, there were a total of 137 IPOs raising US$6.5 billion in 2022, compared to 134 IPOs raising US$13.2 billion in 2021. Leading in performance were Indonesia (60 IPOs raising US$2.2 billion), Thailand (32 IPOs raising US$3.1 billion) and Malaysia (29 IPOs raising US$700 million), followed by the Philippines (eight IPOs raising US$500 million) and Singapore (eight IPOs raising US$40 million). Notably the number of larger listings on SEA exchanges had been limited in 2022, but with reduced Covid-19 restrictions, there may be a return of larger IPOs in 2023.

Europe, the Middle East and Africa (EMEIA) IPO activity fell by 53% and 55% by number and proceeds, respectively, recording 358 IPOs raising US$49.9 billion. Even though Europe IPO activity was down 78% due to geopolitical turmoil, Middle East and North Africa (MENA) was up 115% by proceeds as it benefited from the large energy and other IPOs completed, coupled with the initiative rolled out by the government’s privatisation plan. EMEIA also delivered five of the top 10 IPOs this year.