Funding for IPOs Falls 68% Since 2021

IPOs, funding, market conditions, inflation, interest rate

The world’s bankers don’t expect a happy new year when it comes to IPOs.

With inflation and interest rates rising and investor enthusiasm for initial public offerings (IPOs) waning, deals have fallen to levels not seen since the 2008 financial crisis, Bloomberg reported Sunday (Dec. 18).

The report noted that $207 billion has been raised from listings in 2022, a 68% decline since last year. The slump is so big, Bloomberg said, that a recent listing boom in the Middle East and China can’t counter the IPO drought in the U.S.

“Two things are needed for [equity capital markets (ECM)] activity to resume: stability around inflation and visibility on the trajectory for interest rate hikes,” Edward Byun, co-head of Asia ex-Japan equity capital markets at Goldman Sachs, told Bloomberg.

“Once there is conviction inflation has peaked and clarity on the rate outlook — likely in the second quarter of next year — we will begin to see the market move forward,” he added.

However, experts said that forward momentum won’t come quickly.

“We expect to see a slow normalization of the IPO market next year,” Gareth McCartney, global co-head of ECM at UBS. “There isn’t a clear path into distress or growth issuance yet, and investor demand will be selective in each product.”

PYMNTS has noted a number of signs of this slow demand lately. Last week saw the news that London contributed just 9% of all of Europe’s IPO market this year, marking the worst performance of the London Stock Exchange (LSE) in 13 years.

In the wake of Brexit, London’s position as the unrivaled capital of European finance is threatened by ascendant stock markets in France and Germany.

For example, Euronext Paris overtook the LSE as the European stock exchange with the largest market capitalization in November. And while the LESE was just able to retake the top spot thanks to the pound rallying soon after, the exchange’s days of enjoying a trillion-dollar lead over its peers on the continent are long gone.

Meanwhile, this decline in deal-making has led to numerous job cuts at banks in Europe, PYMNTS reported last week.

“By June this year, bankers had already found themselves short on work,” we wrote. “After the average value of initial public offerings in the U.S. and Europe plunged by 90% in the first half of the year, companies put flotations on hold, while those that went public did so in a difficult market that has reduced bankers’ fees.”