Going public: IPOs are on the rise again
New IPO deals commencing increased by 33% this quarter (QoQ), despite a decrease of 74% over the full financial year (YoY).
In their Global IPO Trends Q2 2023, EY predicts that IPO activity will rebound in late 2023 as economic conditions and market sentiment improve as we see the final stage of tight monetary policy. It’s anticipated that major markets will witness large corporate spin-offs and carve-out listings as companies seek to enhance shareholder value through divestiture. Investors, on the other hand, are favoring established, profitable businesses amid a slow IPO market recovery.
To succeed in different IPO markets, companies must understand specific requirements, meet investor expectations, and avoid regulatory delays. Investors are becoming more selective, looking for companies with strong fundamentals and proven track records. Exploring various options, such as alternative IPO processes (direct listing or de-SPAC merger) or alternative financing methods (private capital, debt, or trade sale), is essential.
Despite the uncertain global economy and unpredictable geopolitical landscape, certain stock markets are thriving with low volatility. Technology and clean energy sectors, in particular, show signs of increased IPO activity.
Well-established companies are displaying resilience, while growth narratives with realistic valuations are gaining market acceptance. In this dynamic environment, companies must prepare to be 'IPO-ready' for potential opportunities ahead.
Where did all the SPACs go?
The market for special purpose acquisition companies (SPACs) has steadily declined since the boom in 2021. S&P Global Market Intelligence data shows that there were just 86 SPAC IPOs in 2022, compared to 610 in 2021.
J.P. Morgan Asset Management has called the SPAC era spurred by the pandemic ‘disastrous’ and ‘nothing short of a train wreck’, with approximately 90% of SPACs underperforming the equity markets by as much as 70%.
“Even more than crypto, the metaverse, and unprofitable hydrogen [and electric vehicle] companies, SPACs may be the best example of the corrosive effects of too much stimulus on markets, investments, and risk appetite,” said Michael Cembalest, chairman of market and investment strategy for J.P. Morgan Asset Management.
Out of the 431 SPACs that merged between 2020-2021, there were only 10% that didn’t experience negative net returns. SPACs that went public in 2020 exhibited the poorest performance, causing investors to suffer a median loss of over 80 percent.
Cementing the end of the SPAC era, an increasing number of these ventures have faced bankruptcy amid ongoing concerns about the speculative nature of SPACs. Three recent examples include Quanergy Systems Inc., Fast Radius Inc., and Enjoy Technology Inc., which all went from making their stock market debuts last year via SPAC – to filing for bankruptcy within a surprisingly short time span.