Will the IPO market pick up in the second half of 2023?
Maxim Manturov, Head of Investment Research at Freedom Finance Europe, comments on the future market of the IPOs
The IPO market in 2023 has struggled compared to recent years. Despite optimism built at the start of the year from the removal of covenant restrictions in the PRC and the hope of inflation peaking, reports found Q1 produced a total of 299 IPOs raising $21.5bn (£17.3bn), which equated to a 8% decrease in volume with proceeds down by 61% year-over-year. The decrease is easily linked to interest rate hikes, increased inflation, disappointing stock market conditions, and the banking sector crisis.
While small IPO activity continues, most large IPOs announced postponing going public at the start of the year until there is more market certainty. Interestingly, these offerings are attracting small investors rather than large institutional investors.
For example, Mangoceuticals Inc, a men’s wellness product and service provider, found its IPO funded at least 40% by retail buyers. Normally, large offerings find at least 90% of offered stocks bought by large investment funds and other institutions. This could be an indication that despite the challenging market conditions, private investors remain risk-averse.
For restored activity in the large IPO segment, there needs to be a slowdown in monetary policy tightening by the Fed. This could result in the completion of the flow of funds from growth stocks to value stocks. Another important factor for the large IPO market is the decline in the VIX volatility index below 20. If the indicator remains above this mark, it is usually difficult for the company and underwriters to establish a fair price at which the issuer will be of interest to investors and be able to raise the planned capital. For this reason, companies often choose to postpone their offering indefinitely.
While the market is ultimately unpredictable, hope for this year continues to build. With inflation levelling, bank disruptions fading, and the energy crisis becoming manageable, investors can begin to expect the market to begin normalising, hopefully indicating that the IPO market will likely intensify in the second half of 2023.
While many companies have chosen to withdraw or postpone IPOs, Arm Ltd., a British semiconductor and software design company, plan to file a confidential IPO application by the end of this month and the listing should take place before the end of the year, allowing the company to raise at least $8 billion (£6.5 bn). However, the exact timing of the offering will depend on market conditions. Other major offerings scheduled for later this year include Reddit, Discord, Instaract, and VinFast.