EY: First half of 2022 saw dramatic slowdown in global IPO activity from a record year in 2021

IPO momentum continued to slow from Q1 into Q2, resulting in a considerable decline in both deal numbers and proceeds. Heightened volatility caused by geopolitical tensions and macroeconomic factors, declining valuation and poor post-IPO share price performance led to the postponement of many IPOs during the quarter. The dramatic slowdown in IPO activity in YTD 2022 after a record year in 2021 was experienced across most major markets.

For Q2 2022, the global IPO market saw 305 deals raising US$40.6b in proceeds, a decrease of 54 percent and 65 percent, respectively, year-over-year (YOY). YTD 2022, there were a total of 630 IPOs raising US$95.4b in proceeds, reflecting decreases of 46 percent and 58 percent, respectively, YOY.

The 10 largest IPOs by proceeds raised US$40b, with energy dominating three of the top four deals, replacing the technology sector as the top IPO fund raiser. The technology sector continued to lead by number, but the average IPO deal size came down from US$293m to US$137m, whereas energy has overtaken to lead by proceeds with average deal size increasing from US$191m to US$680m YOY.

Special purpose acquisition company (SPAC) IPOs are significantly down in line with traditional IPO activity despite new markets joining. The SPAC market has been challenged this year as a result of broader market conditions, regulatory uncertainty and increased redemptions. A record number of existing SPACs are actively seeking targets with the majority of them facing potential expiration in the next year. However, market performance and regulatory clarity will likely drive future deal flow.

In line with the sharp decline in global IPO activity, there was a sizable fall in cross-border activity affected by geopolitical pressures and government policies on overseas listings. These and other findings were published in the EY Global IPO Trends Q2 2022.

Overall regional performance: investors are refocusing on fundamentals

The Americas region completed 41 deals in Q2 2022, raising US$2.5b in proceeds, a decline of 73 percent in the number of deals and a 95 percent fall in proceeds YOY. The Asia-Pacific region recorded 181 IPOs, raising US$23.3b in proceeds in Q2, a decline YOY of 37 percent for volume and 42 percent in proceeds. EMEIA market IPO activity in Q2 2022 reported 83 deals and raised US$14.8b in proceeds, a YOY decline of 62 percent and 44 percent, respectively.

Given the tightened market liquidity and significant decline in stock prices of many new economy companies that went public during the last two years, investors are becoming more selective and are refocusing on the companies’ fundamentals instead of just “growth” stories and projections, e.g., sustainable profits and free cash flows.

Paul Go, EY Global IPO Leader, says:

“Any initial momentum carried from a record IPO year of 2021 was quickly lost in the face of increasing market volatility from rising geopolitical tensions, unfavorable macroeconomic factors, weakening stock market/valuation and disappointing post-IPO performance, which further deterred IPO investor sentiment. With tightening market liquidity, investors have become more selective and are refocusing on companies that demonstrate resilient business models and profitable growth, while embedding ESG [environmental, social and governance] as part of their core business values.”

Americas saw notable slowdown in IPO activity

Overall, IPO activity in the Americas region saw the sharpest decline (among all regions) in Q2 2022 compared with Q2 2021, with deals down 73 percent (41 IPOs) and proceeds falling by 95 percent (US$2.5b). However, compared with Q1 2022, both number of deals and proceeds are up (14 percent and 6 percent, respectively).

In the US, an overwhelming majority of 2021 IPOs are trading below offer price, and average performance is trailing broader market declines, influencing investor appetite to participate in new transactions. Despite the much-reduced level of global cross-border IPO activity YTD 2022, the US remains the top cross-border destination.

In Canada, following a record-breaking 2021, one listing on the Toronto Stock Exchange (TSX) in May 2022 broke the drought in IPO activity. Market turmoil and uncertainties had shut down the TSX’s main market listings in 2022, but there are companies in the pipeline that will be able to take advantage of the opportunity once the markets reopen.

Brazil’s IPO market slowed to a crawl at the start of 2022 as dozens of companies scrapped or postponed deals. This is the first time that Brazil experienced a dearth of IPOs in the first half of the year since 2016. Market volatility is expected to continue as high inflation persists and interest rates climb to double digits.

Rachel Gerring, EY Americas IPO Leader, says:

“IPO activity across the Americas remains muted amid macroeconomic headwinds that continue to impact performance and valuation. These headwinds have led to a ‘wait-and-see’ approach. When markets begin to recover and confidence steadies, the types of companies that will kickstart the IPO market will likely be profitable, cash flow-oriented and with meaningful scale. Once the IPO market reopens, companies that move quickly will be able to take advantage of the most opportune moment.”

Asia-Pacific IPO market was weakened in 2022

The Asia-Pacific area finished the quarter with a 42 percent decline in proceeds and 37 percent decline in deals YOY. However, Asia-Pacific markets performed relatively better benefiting from the two largest global IPOs YTD. The region saw 181 IPOs raising US$23.3b in proceeds during Q2, and 367 IPOs raising US$66.0b in proceeds YTD 2022. In terms of sector activity YTD, materials led the way with 78 IPOs, closely followed by industrials with 77 IPOs. YTD, the Shenzhen Stock Exchange had the highest number of deals with 82, constituting 13 percent of global IPOs. Meanwhile, the Shanghai Stock Exchange had the highest proceeds with US$32.8b, making up 34 percent of global IPOs YTD.

YTD 2022, Greater China saw a YOY decline of 36 percent in deals (191) and a 16 percent fall in proceeds (US$51.2b). A convergence of factors (COVID-19 restrictions, geopolitical unrest, weakened stock market, economic uncertainty and rising interest rates) had a negative impact on IPO activity in Hong Kong. With COVID-19 restrictions in Shanghai and Beijing lifting, along with the State Council’s 33 stabilization policies and measures, China’s economy is expected to rebound significantly in Q3 2022 and boost investor sentiment.

Japan saw 37 IPOs raise US$0.5b in total proceeds YTD, down 84 percent in proceeds and 31 percent in deals, YOY. Deteriorating investor sentiment is primarily driven by geopolitical conflicts, rising energy prices and depreciation of the Japanese yen. Tokyo Stock Exchange has been restructured into three new market segments – Prime, Standard, and Growth – to boost investor sentiment and gain global market share.

YOY, Australia and New Zealand IPO activity witnessed a modest YTD decline in number of IPOs (3 percent). However, the decline in proceeds was substantial (76 percent). It can be attributed to several big IPOs being deferred to 2022 Q3/Q4. While fundraising activities have slowed down mostly due to poor investor sentiment, there have been some M&A activities, including demerger and IPO transactions for carved-out businesses.

Ringo Choi, EY Asia-Pacific IPO Leader, says:

“A multitude of factors, from COVID-19 restrictions and war in Europe to rising inflation rates and US/China tensions, have weakened Asia-Pacific’s IPO market in the first half of 2022. But a series of positive economic developments and new government policies in China should result in renewed optimism and a revival in IPO activity across the Asia-Pacific region for the remainder of the year.”

EMEIA’s IPO market continues to be affected by market volatility

In Q2, EMEIA remains the second largest IPO market after Asia-Pacific and saw 83 IPOs (a decline of 62 percent YOY) and proceeds raised were US$14.8b (a 44 percent decline YOY). YTD, there were 186 IPOs with US$24.4b in proceeds.

In the second quarter of 2022, deal numbers in Europe were 43 with proceeds of US$1.5b raised. Europe accounted for 15 percent of global IPO deals and 4 percent of proceeds in YTD 2022. Two European exchanges were among the top 12 exchanges by proceeds and one of them by number of deals.

During YTD 2022, India was the only region to witness a YOY rise in IPO activity, both by number of deals (18 percent) and proceeds (19 percent), with 32 IPOs in Q2 2022 comprising one of the largest ever IPOs in India that raised US$2.7b.

MENA IPO activity continues to look promising after a strong start to the year, despite uncertainties that are affecting the global IPO outlook. While there was a decline in terms of number of deals (54 percent), and with seven IPOs in Q2, several mega IPOs (IPOs with proceeds equal to or greater than US$1b) in the region led to a YOY increase of 382 percent in proceeds during YTD 2022, with 31 IPOs raising US$14.5b in proceeds. The region witnessed four of the top 10 global IPOs YTD.

In the UK, the slower pace of IPO activity was due to a dip in investor confidence from Q4 2021 that carried into 2022. YTD 2022 saw 13 IPOs (with 4 IPOs in Q2) with total proceeds of US$149m, a YOY decline of 71 percent by volume and 99 percent fall by proceeds. However, the UK markets regulator has set out plans to simplify listing on the London Stock Exchange to attract more fast-growing tech groups and startups in the face of increased competition from the US and the EU.

Dr. Martin Steinbach, EY EMEIA IPO Leader, says:

“Tough times and unusual uncertainties kept market volatility at elevated levels and led to subdued IPO activity. We are seeing investors being more selective and a shift to IPO stories related to energy transition and ESG.”

Q3 2022 outlook: uncertainties and volatility are likely to remain

There were many mega IPOs postponed in the first half of 2022, which represent a healthy pipeline of deals that are likely to come to the market when the current uncertainties and volatility subside. However, strong headwinds from the current uncertainties and market volatility are likely to remain. These include geopolitical strains, macroeconomic factors, weak capital market performance and the impact from the lingering pandemic on global travel and related sectors.

The technology sector is likely to continue as the leading sector in terms of the number of deals coming to the market. However, with greater focus on renewable sources of energy in the face of increasing oil prices, the energy sector is expected to continue to lead by proceeds from bigger deals.

ESG will continue to be a sector-agnostic key theme for investors and IPO candidates. As global climate change and energy supply constraints intensify, companies that have embedded ESG into their core business values and operations should attract more investors and higher valuation.