Global IPO Market Trends

However, there are green shoots emerging that give us some confidence as we head towards the second half of the year.

While we don’t expect 2023 to be a banner year for new listings, we can tentatively say that conditions are improving – albeit slowly and even if the numbers don’t quite show it yet.

Below we present five key trends that shaped activity in Q2. These trends are likely to steer direction of the market in the coming months.

As was the case in the first quarter, the Asia-Pacific region continues to power the global IPO market.

According to EY, there were 190 deals in the region in Q1, raising a combined $26.3bn. That leaves the number of deals down 2% year-on-year but the amount raised up 12%.

However, there was a noticeable leap in activity in the region between the first and second quarters, with the number of IPOs jumping 8.6% and the amount they raised soaring 107%.

Unsurprisingly, China and Japan – the region’s two economic powerhouses – were responsible for the bulk of deals during the quarter.

While China and Japan have not been without their worries post-pandemic, their economies have gathered momentum of late.

Coupled with the fact that inflation and interest rates remain markedly lower in both countries than in most other major economies, it’s unsurprising they are witnessing more IPOs.

However, activity will have to pick up considerably if 2023 is to match the output produced in previous years.

The number of new issues slumped 17% year-on-year in North America, although the amount raised increased by a hefty 151%.

Whilst Q2 may seem mixed for the continent, conditions are improving to the point where we believe IPO activity will soon pick up.

The US’s three main indices – the S&P500, the Dow Jones and the Nasdaq – have all made strong gains over the past year, driven by a recovery in technology stocks.

At the same time, the US is far further along the monetary tightening cycle than its counterparts in Europe, with the peak for interest rates now in sight.

While the US economy is not out of the woods yet, inflation has been moderating and now many economists are predicting a soft landing rather than a recession.

In recent months, we have also witnessed a number of European firms opting to shift their listing to the US to take advantage of the fact it has the deepest capital markets in the world.

If the US economy continues to defy the odds, we expect listings to pick up over the second half of the year.

One of the main issues plaguing the global IPO market over the past 18 months is what we call a “valuation mismatch”.

In short, there has been a tendency for floating firms to pitch their valuations much higher than investors have been willing to pay.

As a result, we have seen a lot of IPOs across all markets suffering from poor share price performance in the months after the firm floated.

The fact that companies and investors have been failing to meet eye-to-eye on valuation is a key factor in the lack of IPOs over the past year and a half.

However, there is evidence that that trend is beginning to reverse.

At the end of June, 32% of firms that floated in 2023 were trading below their offer prices, compared with 45% of those who floated last year, according to EY.

That suggests companies and investors are coming closer together in terms of valuations, although clearly there is much more work to be done.

While valuation discounts have been narrowing globally, investors remain cautious in Europe’s main IPO centers.

The reason for that is primarily economic, with the outlook for the region remaining challenging.

Many major European economies are struggling under the weight of decades-high inflation and rising interest rates, which is sapping their growth prospects.

The region’s flagging economy is feeding through to IPO activity, with the number of deals falling 38% year-on-year in the first two quarters, according to EY.

In Q2, WE Soda, the world’s largest producer of natural soda ash, abandoned its London listing, blaming “extreme investor caution”.

The Turkish firm’s chief executive also reportedly took aim at the “commitment” of UK and European investors after it failed to meet its target valuation of around $7.5bn.

The UK has been hit particularly hard by the global IPO drought, with only a handful of new issuers so far in 2023.

However, the government and city regulators are pressing ahead with their long-awaited plans to reinvigorate London’s capital markets.

In May, the Financial Conduct Authority proposed a package of measures to make London a more attractive list, including replacing its existing ‘standard’ and ‘premium’ listing segments with a single category.

Plus, in early July, Jeremy Hunt, the UK Chancellor, used his annual Mansion House speech to announce plans to unlock up to £50bn of pension fund capital by 2030 to fund UK growth companies.

It is hoped that the combination of these factors will attract fast-growing technology and other firms to make their home on the London Stock Exchange.

However, that won’t happen overnight. We expect London listings to pick up again, possibly this year or next, but that will be driven more by an improving economic situation rather than regulation.

Insights from Robin Walker - Director of Business Development at EQ