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IPO activity still slow in 1H 2023, but market conditions are improving

IPO aspirants: be ready to seize emerging market opportunities

US IPO activity remained slow in 1H23, compared to prior bull markets. However, the IPO market saw an uptick over last year, driven primarily by a few large deals, and improvements in key macroeconomic factors signal hope for a turnaround later this year or in early 2024.

In brief
  • For the US IPO market to begin normalizing, the first wave of IPOs likely needs to come to market at reasonable valuations and trade well in the aftermarket.
  • IPO aspirants should be ready to capitalize on potentially fleeting market windows. Preparation is critical, particularly regarding public company readiness.

US IPO deal count and proceeds

While the public markets have not yet come roaring back, US IPO activity experienced an uptick in 1H23, driven primarily by a few large deals. US IPOs raised $10.1 billion via 63 IPOs, representing increases of 115% and 24%, respectively, over the comparable 2022 period.

Proceeds raised was largely driven by a single $4.4 billion IPO in May, accounting for over 40% of total US IPO proceeds YTD. The offering, which was the largest US IPO since November 2021, traded up 22.3% on its first day of trading.

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Considering the market challenges of recent years, including stubborn inflation, geopolitical instability and rising interest rates, corporates have been actively exploring ways to unlock value and drive shareholder returns. Two of the larger US IPOs in Q2 2023 were carve-outs from corporates, and a number of similar spinoff transactions are in the pipeline.

 

The Market Outlook in 1H 2023

 

Despite the slowdown in the US IPO market in recent quarters, many of the headwinds that contributed to the dearth of activity began to subside in 1H 2023. Equities have rebounded from 2H 2022 lows, inflation may have peaked, interest rate increases could be nearing an end, and volatility has subsided to pre-COVID lows.

 

Still, it may take the IPO market longer to recover than many market participants forecasted at the beginning of the year. The unforeseen banking crisis in 1H 2023 drove uncertainty in the markets, but contagion fears seem to have faded, yielding optimism for more activity in the back half of 2023 and into 2024, given the more constructive market backdrop.

 

“Despite the continued slow pace of IPOs, recent improvements in market sentiment and the uptick in follow-on activity could be a harbinger of brighter days in the IPO market later this year or next year,” says Mark Schwartz, EY Americas IPO and SPAC Advisory Leader.

 

Six factors that could improve the IPO market backdrop

1. Continued moderation in inflation


2. Interest rate hikes slowing, stopping or reversing


3. Market volatility remaining subdued


4. Commodity prices stabilizing


5. Growth stocks performing


6. Earnings estimates remaining stable or improving


Looking ahead

With the backdrop improving, IPO aspirants should position themselves to be ready for when the market window reopens. Navigating strategic transactions like an IPO is complex, and preparation is critical, particularly as it relates to public company operations. Prioritizing your strategic timeline and milestones now will leave issuers with more flexibility and optionality for optimal outcomes.

“Now is the time to activate your IPO plans and build muscle around operating as a public company,” says EY Americas IPO Leader Rachel Gerring. “Preparation is key to capitalize on potentially fleeting market windows with confidence.”

The path forward – top 5 things IPO aspirants should do now

  1. Do what you do best: focus on near-term, actionable growth drivers for your business
  2. Manage capital carefully to ensure an ample financial and operational runway to IPO
  3. IPO sizing, timing and certainty are never a given; plan accordingly
  4. Integrate environmental, social and governance (ESG) into your strategic priorities well ahead of an IPO
  5. Be proactive about IPO preparation and be ready for potential sharp turns in market windows

Summary 

Many of the macroeconomic challenges that halted IPO activity in recent quarters have begun to subside in 1H 2023. IPO aspirants should prepare and position themselves for when the market window reopens.

Global IPO market, YTD 2023 review

Despite low market volatility and strong stock exchange performance in certain major financial markets, YTD 2023 saw more than 600 IPOs raising approximately US$60 billion, a contraction of 5% by volume and 36% by value YOY. These modest results continue to reflect slow global economic growth, tight monetary policies and heightened geopolitical tensions. High interest rates and poor post-IPO share price performance have persuaded investors to look for other investment asset classes.

For an in-depth look at global trends, read the full report: EY Global IPO Trends Q2 2023

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The EY Global IPO Trends Q2 2023 report provides deeper analysis and insights.

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