After a record-breaking 2021, the global IPO market took a sharp turn in the opposite direction in 2022. With only 1,333 IPOs raising US$179.5b, IPO activity dipped 45% and 61% by number of deals and proceeds, respectively, year-over-year (YOY).

As the average deal size shrank due to lowered valuation and poor stock market performance, we didn’t see as many large IPOs launched in 2022. These and other findings were published today in the EY Global IPO Trends 2022.

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

Similarly, 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.

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

The technology sector 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$1b, the average proceeds in 2022 are 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 ASEAN countries have performed relatively well despite the significant global underperformance.

Iulia Bratu, Partner, Head of Lead Advisory, EY Romania: “Despite multiple headwinds affecting global capital markets, the Romanian IPO market remains resilient and continues to display solid growth prospects in the medium to long term.

The number of companies that consider listing on the Bucharest Stock Exchange has increased, boosted by the success of the recent public offerings by local blue-chip companies.

Moreover, Aero, the local secondary market, has actively attracted a growing number of smaller companies, in preparation for the more rigid requirements of the main market.

We also note a constant increase in the number of active retail investors, a growing number of people becoming more sophisticated with their financial investments.

An added bonus for the growing activity of the local stock exchange is the increasing interest coming from leading companies in the Republic of Moldova.”

Overall regional performance: waiting for a comeback in 2023 and more favorable market conditions to return

The Americas’ 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 numbers of IPOs and proceeds took a nosedive, with 130 deals raising US$9b, down 76% and 95%, respectively, YOY. Not surprisingly, most of the Americas’ IPOs (69%) were on US exchanges.

The Asia-Pacific IPO market had 845 IPOs totaling US$120.6b 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 is on course to set another record in the highest annual capital raising by the close of 2022.

EMEIA IPO activity fell by 53% and 55% by number and proceeds, respectively, recording 358 IPOs raising US$49.9b. Even though Europe IPO activity was down 78% due to geopolitical turmoil, 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 privatization plan. EMEIA also delivered 5 of the top 10 IPOs this year.

2023 outlook: waiting for the right window while focusing on fundamentals and ESG

Looking ahead to 2023, there is a strong IPO pipeline on the horizon. 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.

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.

Many prospective IPO companies are still going to take the “wait-and-see” approach, holding out for the right window. For now, investors will focus more on a company’s fundamentals, such as revenue growth, profitability and cash flows, 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.