What Is the Current Health of the IPO Market?

January 27, 2023 4:00 pm
Published by: Marcus Crest

With the year wrapping up, everyone is throwing in their two cents regarding the status of the economic scene in the upcoming months. Between the rising interest rates and the wave of high inflation, the IPO scene is looking gloomy for companies and investors alike.

In short, firms wanting to bring in funds by offering shares for public sale are having trouble pulling the transition through, which begs the question: what is the current health of the IPO market?

Today, I'll walk you through the IPO situation in 2022 and explain what investors and businesses can expect in 2023.

What Happened to the IPO Market in 2021 and 2022?

2021 was a record-breaking year for initial public offerings. But 2022? A total bust.

Why the drastic shift you ask? Well, there are a bunch of reasons.

2021 IPOs Sored to New Heights

In 2021, the US stock market had a total of 1035 IPOs, which was -and still is- the all-time highest number of listings.

It was, in fact, a number that broke the previous record of IPOs in 2020, which was 480. That's a 120.4 percent growth rate if you want to get technical.

The historic IPO performance of 2021 was crowned by a staggering $286 billion in raised funds.

SPACs (special purpose acquisition companies) were the driving force behind the majority of shares listed, per cent to be exact. These publicly traded firms are founded solely to acquire or merge with an existing establishment.

The Hidden Truth

However, the seemingly mountain-high activity of 2021 IPOs hid a stunning reality that would soon follow.

The first days of listing showed promising gains at an average of 31 per cent. But due to the pandemic and rising inflation, there was also an average drop of 22 per cent in aftermarket trading.

Not to mention, December of 2021 witnessed a per cent drop in the number of new deals. Compared to December 2020, there were only nine deals as opposed to the previous 27.

The 2022 IPO Flop

To say that the IPO market fell off a cliff in 2022 would be an understatement.

The number of IPO listings dropped by a shocking per cent from 2021, according to Lynn Martin, president of the NYSE (New York Stock Exchange).

Only 175 companies debuted in the US IPO market. That's almost an 83 per cent fall from the previous year by the same date.

Compared to 2021, this year has seen the lowest IPO proceeds in over 30 years. It accumulated only $7.7 billion after a whopping $142.4 billion the previous year.

On a global scale, IPO volumes dropped by 45 percent between September and November of 2022 compared to last year. The IPO proceedings plunged by 61 per cent.

The volatility of the market has several triggers. The increasing interest rates, the rising inflation, the boiling geopolitical tension, and the persistent pandemic aftermath are just some of them.

These factors caused investors to lose confidence in the market. The current disappointing performance of various IPOs that were listed in 2021 only made things worse.

Many investors turned away from new public companies and preferred to play safe with less risky assets. A lot of companies also decided to give up on their 2022 ventures into public debuts.

The uncertainty plaguing the IPO market has undoubtedly presented a tough challenge for investors and companies. The declined activity seems to be a widely adopted strategy as they wait for more stability and positive sentiments.

Did SPACs Contribute to the Current Unfavorable Stock Market Conditions?

As I mentioned earlier, SPACs played a vital role in the sweeping success of 2021 IPOs.

These companies represented more than 59 percent of all the new listings, which is about a 6 percent jump from 53 percent in 2020.

Although 2021 SPAC listings leaped almost 150 percent compared to the year before, SPAC activity went down by the second half of 2021 due to the added scrutiny of the SEC (Securities and Exchange Commission).

The regulation efforts affected IPO and SPAC activity well into 2022. De-SPAC transactions dipped 88.6 per cent more than they did in 2021 by September.

At the same time, only 76 SPAC listings appeared on the US stock market and generated $12.4 billion. That's a massive step down from the 450 SPAC IPOs in 2021 that made $124.07 billion.

However, this comparison may be a bit unfair because the 2021 SPAC performance is most likely a spur, not a reliable reflection of general SPAC activity.

Will the IPO Market Go Back to Normal in 2023?

With the hit that the IPO market took in 2022 following a record year in 2021, everyone has the same question on their mind: will 2023 be a normal year?

If by "normal" you mean "good", then no. At least not for the first half of the year.

The outlook for the 2023 IPO market is less than optimistic. As Financial Times put it, expect sluggish activity at best and a comatose at worst.

According to Craig Coben, a former senior investment banker at Bank of America, the prediction for IPOs in 2023 is Clubber Lang's iconic "Pain" moment in Rocky 3.

This outlook is based on the collapse of worldwide IPO volumes around the world. Many major stocks are currently trading below their initial listing price of 2020 and 2021.

Even companies that foresaw going public in 2022 have taken a raincheck. Stripe, for example, doesn't see sense in executing an IPO with its valuation dropping from $95 billion to a dramatic $75 billion.

The IPO is bound to make a comeback once there's a rise in equity demands and a tech breakthrough gets investors excited again. As always, innovation will eventually make way for another boom.

Final Thoughts

What is the current health of the IPO market? Two words come to mind: uncertain and cautious.

2022 was one of the worst years for the stock scene. Going into 2023, companies, investors, and the IPO ecosystem have some serious planning to do.

If you are interested in getting involved in IPOs/new listings then here is your best chance of doing so:

● Create an online account with a eToro or Switchmarkets as they will make new issues available to you at the earliest possible opportunity.

If you are based in the US then register with eToro to gain access to Canva early by clicking here. 

For the rest of the world sign up to eToro with this link, unless you are in India or Canada then sign up with Switchmarkets here, you can register your interest in the stock and they will tell you as soon as it is available. 

The information in this article is well-researched and factual. Still, it contains opinions also, and IT IS NOT FINANCIAL ADVICE and should not be interpreted as such, do not make any financial decisions based on the information in this article; we are not financial advisors. We are journalists. You should always consult with a professional before making any investment decisions.

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