Investors who rode the initial public offering (IPO) rocket to the moon over the previous two years likely wound up feeling sore and sorry in 2022. This year finally brought the pandemic-era IPO mania hurtling way back down to earth.
The IPO market was the slowest in over three decades, according to a new report by Renaissance Capital. Comparing the numbers with last year’s brings the IPO implosion into stark relief. Whereas U.S. markets saw 397 deals which raised $142.4 billion in 2021, this year there were just 71 deals, raising just $7.7 billion.
The investment bank characterized 2022 as a “reset year” for IPOs that signaled the end of “another era of easy money.”
The report saw a number of interrelated forces that together slammed the IPO window shut this year, including Russia’s invasion of Ukraine, a price correction in overvalued stocks, historic interest rate hikes by the Fed, and mounting fears of a coming recession.
Unicorns all but vanished. There were just two billion-dollar IPOs this year (as opposed to 27 in 2021). These were both from the financial sector, with Corebridge Financial’s deal reaching $1.68 billion, and TPG hitting $1 billion. The third and fourth largest deals for the year came from Intel’s self-driving tech spin-off Mobileye, which raised $861 million, and Canadian eye health company Bausch + Lomb, which brought in $630 million.
Instead, micro-deals quietly kept coming as the IPO flow slowed to a trickle. Nearly three-quarters of IPOs this year came from small offerings of under $50 million. Renaissance noted it has been more than 20 years since small-scale launches made up such a high portion of total offerings.
Overseas companies made their presence felt in U.S. markets this year. IPOs from foreign issuers accounted for 27 deals (or 38%) of the total. The majority of these deals were from Chinese companies, with the remainder coming from seven other countries, including Canada, the U.K., and Israel.
Big tech’s retreat made headlines this year, with Silicon Valley giants losing around $3 trillion in market capitalization as investors sought refuge in more traditional sectors.
Tech was also hard hit by the IPO crunch, with deals from the sector delivering an average loss of 41% after going public. Yet it wasn’t the worst-performing sector – IPOs from consumer discretionary, real estate, and industrials all averaged losses of over 60%. However, energy and healthcare bucked the downward trend, with deals from these two sectors generating averaged returns of 17% and 11%, respectively.
The outlook for IPOs in 2023 looks uncertain. While a recession looks increasingly likely to hit in the first half of next year, there could be cause for cautious optimism in the final six months if the economy turns. Renaissance claims IPOs have historically tended to outperform during market recoveries.
The Nasdaq may be a key indicator to watch here. Data from market crashes in 2000 and 2008 suggests the IPO pipeline usually recovers to normal levels once the index regains around 50% from its bottom.
Renaissance predicts a relative recovery in 2023, expecting IPOs to normalize in the second half of the year, depending on broader market conditions. The firm forecasts around 75 to 150 deals to take place next year.
The companies listed at the top of “Notable Upcoming IPOs” include Vietnamese electric vehicle brand VinFast and industrials player Clarios Group. Each has an estimated deal size of $1 billion.
Several famous tech firms are currently in an IPO holding pattern, awaiting better conditions before touching down in the markets. Stripe, Instacart, and Reddit, have all filed with the SEC but have delayed their launch. Each of their deals could raise tens of billions. Investors will likely follow any updates on these delayed IPOs closely. News that these or other big tech brands are ready to land could signal the worst of the IPO freeze has passed.
This article was produced and syndicated by Wealth of Geeks.