EY: Significant slowdown in global IPO activity in the first half

The downward dynamics of the first quarter in the public subscription market continued in the second quarter, resulting in a significant decrease in both the number of transactions and revenues. Increased volatility caused by geopolitical tensions and macroeconomic factors, declining valuations and poor post-IPO price performance led to the postponement of many IPOs during the quarter. The dramatic slowdown in public listings activity since the start of the year, following record highs in 2021, was recorded in most major markets.

In the second quarter of 2022, the global IPO market completed 305 transactions, raising $40.6 billion in revenue, down 54% and 65%, respectively, year-on-year. Year-to-date, the number of public subscriptions reached 630 and revenue $95.4 billion, down 46% and 58%, respectively, year-on-year.

Through the first half of 2022, the 10 largest IPOs by revenue raised $40 billion. The energy sector replaced technology as the sector that raised the most capital, with the average deal size increasing from $191 million to $680 million, and dominating three of the top four deals. The technology sector continued to lead in the number of deals, but the average value of public listings fell from $293 million to $137 million.

Special purpose buyout company (SPAC) IPOs declined significantly, following traditional IPO activity, despite the entry of new markets. The SPAC market has faced challenges this year as a result of broader market conditions, regulatory uncertainty and increased acquisitions. A number of existing SPACs are actively seeking targets, as many of them face possible expirations in the next year. However, market performance and a clarification of the regulatory environment will likely lead to a restoration of future deal flow.

Following the sharp decline in global IPO activity, there has been a significant drop in cross-border activity, influenced by geopolitical pressures and government policies on foreign IPOs. These and other findings are included in EY’s Global IPO Trends Q2 2022 survey.

Performance by geographic region: investors refocus on fundamentals

In the Americas, 41 deals were completed in the second quarter of 2022, raising $2.5 billion in revenue, down 73% in number of deals and 95% in revenue year-over-year. Overall, public registration activity saw the largest decline of any region.

The Asia-Pacific region recorded 181 IPOs, raising $23.3 billion in revenue in the second quarter, down 37% year-on-year in numbers and 42% in revenue. However, markets in the region performed relatively better benefiting from the two largest global IPOs since the start of the year.

The IPO market in the Europe, Middle East, India and Africa (EMEA) region continues to be affected by market volatility. Thus, IPO activity during the second quarter of 2022 saw 83 transactions and raised $14.8 billion in revenue, down 62% and 44%, respectively, on a year-over-year basis. Europe accounted for 15% of global IPO transactions and 4% of year-to-date revenue.

Given the limited market liquidity and the significant drop in share prices of many new economy companies that have gone public over the past two years, investors are becoming more selective and refocusing on companies’ fundamentals, such as sustainable earnings and free cash flow , rather than just the development narratives and forecasts.

Commenting on the findings of the research, Mr. Tasos Iosifidis, Partner and Head of the Corporate Strategy and Transactions Department of EY Greece, said: “The combination of intensifying geopolitical tensions, the unfavorable macroeconomic environment, the retreat of stock markets and valuations, led to the dramatic decline in IPO activity in the first half of the year. In this environment, investors have become more selective in their holdings and carefully assess companies’ fundamentals, resilience, and ESG performance. companies planning to go public should be well prepared, with a convincing business model”.

Third quarter 2022 outlook: Uncertainty and volatility likely to remain

There have been several major IPOs postponed in the first half of 2022, which represent a healthy pool of deals that are likely to return to the market when the current uncertainty and volatility subsides. However, “strong headwinds” fueled by current market uncertainty and volatility are likely to remain. These include geopolitical pressures, macroeconomic factors, weak capital market performance and the impact of the prolonged pandemic on global travel and related sectors.

The technology sector is likely to continue to be the leading sector in terms of the number of transactions coming to market. However, with a greater focus on renewable energy in the face of rising oil prices, the energy sector is expected to continue to lead revenue, driven by higher transactions.

Environmental, social and governance (ESG) issues will continue to be a dominant issue for investors and IPOs. As global climate change and energy supply constraints intensify, companies that have integrated ESG into their core business values ​​and operations should attract more investors and higher valuations.