IPO activity falls 45% in 2022 as higher rates crunch financial markets

IPO activity falls 45% in 2022 as higher rates crunch financial markets

It’s been a no good, very bad year for private companies eager to make their debuts on U.S. and global exchanges.

Through December 14, there have been just 1,333 initial public offerings worldwide in 2022 which collectively raised $179.5 billion, marking a 45% drop in listings raising 61% fewer dollars compared to 2021.

“Amid an environment defined by higher inflation and rising interest rates, investors have spurned new public companies and turned to less risky asset classes,” said Paul Go, EY’s global IPO leader, in a report published this week.

In the Americas, IPO activity in 2022 fell to levels unseen since the global financial crisis of 2008-2009.

This year saw only 130 IPOs raise $9 billion, a 13-year low by volume and 20-year low by value, per EY’s data. Those figures also represented declines of 76% and 95% from last year by volume and proceeds, respectively.

Still, IPO activity worldwide came in 16% higher than 2019 even with this year’s fall from record levels. In 2021, more than 2,400 IPOs were completed, raising more than $450 billion.

“A record year for IPOs in 2021 gave way to increasing volatility from rising geopolitical tensions, inflation and aggressive interest rate hikes,” Go said. “Weakened stock markets, valuations and post-IPO performance have further deterred IPO investor sentiment.”

Public offerings backed by financial sponsors like private equity firms saw a sharp drop, too, with the number of deals falling 77% while proceeds collapsed 93%.

The risk-off mood has also strained pipelines for mergers, with many special-purpose acquisition companies — or SPACs, which raise capital from investors in hopes of finding an acquisition target later — approaching their two-year window to find targets after launching in 2020.

Among notable names that have halted plans to go public this year is grocery delivery platform Instacart, which the New York Times reported earlier this year halted a planned IPO process. Instacart declined to comment on its IPO.

As sentiment around speculative pockets of the market turned south this year against a backdrop of economic uncertainty and tighter financial conditions, investors have largely shunned new public companies this altogether.

“Many prospective IPO companies are still going to take the ‘wait-and-see’ approach, holding out for the right window,” EY said. “For now, investors will focus on a company’s fundamentals, such as revenue growth, profitability and cash flows, over just growth projections.”

The collapse in IPO interest also comes during a year that has seen demand for mergers & acquisitions go cold, with deal volume in the third quarter falling 58% from last year, data from S&P Global Market Intelligence showed.

SPAIN - 2021/11/04: In this photo illustration, the logo of the food and grocery delivery app Instacart seen displayed on a smartphone screen and on a laptop. (Photo Illustration by Davide Bonaldo/SOPA Images/LightRocket via Getty Images)

2021/11/04: The logo of the grocery delivery app Instacart seen displayed on a smartphone screen. (Photo Illustration by Davide Bonaldo/SOPA Images/LightRocket via Getty Images)

Some bright spots were still present in an ugly year for deal activity, as technology IPOs continued to lead by volume and accounted for nearly a quarter of deals. The energy sector led the way on proceeds, comprising more than one fifth of money raised by IPOs in 2022.

Globally, proceeds among mega IPOs, or those raising more than $1 billion, proceeds were 45% higher in 2022 from 2021, though swayed largely by some mega energy IPOs.

EY said IPO activity is likely to improve in the new year with more favorable conditions set in place for later into 2023, but the first quarter may be somber before activity regains momentum in the second half of the year.

“As the pipeline continues to build, many companies are waiting for the right time to revive their IPO plans,” Go said in a note. “Still, with tightening market liquidity, investors are more risk-averse and favor companies that can demonstrate resilient business models in profitability and cash flows, while clearly articulating their ESG agendas.”

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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