IPO activity has continued to fall during the second quarter as deal numbers and revenue plummeted.
The US market led the steepest year-over-year deal decline of 73% so far in 2022 compared to the rest of the world, according to the latest EY Global IPO Trends Report.
“I don’t know if we’ve bottomed out, but we’re certainly in a wait-and-see period,” Rachel Gerring, EY Americas IPO Lead, said on Yahoo Finance Live (video above). “Businesses are pausing, taking stock of what’s happening in the broader market and navigating through the choppy waters of rising interest rates, inflation and recession fears, ongoing geopolitical instability and supply chain shortages, labor shortages, high volatility and then we can’t forget the performance of the 2021 IPO class.”
The banner IPO year of 2021 raised a record $453.3 billion in capital worldwide. The US alone ended the year with $174.6 billion in revenue. However, the bullish valuation crushed investors with disappointing post-IPO performance as most of the 2021 IPO cohort is trading next your initial offer price.
waiting on the sidelines
Companies that previously sought to go public face significant volatility and uncertainty.
IPO analysts see private companies navigating an intricate web of economic headwinds caused by the global recession and inflation, rising interest rates, and the war between Russia and Ukraine. Many of them are shifting their focus internally as current IPO weather trends turn unfavorable.
Gerring agreed that lackluster earnings are taking a toll on potential newcomers.
“Companies are taking the time to focus on the inside, looking at and challenging their business, shoring up key functions in that field of public company readiness, forecasting capabilities, etc., and waiting,” he said.
According to the EY report, sectors that normally lead IPO activity have been particularly affected by market volatility, which has prevented many transactions from taking place. And, the report noted, most 2021 IPOs are trading below price, with average performance “lagging behind broader market declines.”
“Investors are becoming more selective and refocusing on the fundamentals of companies rather than just ‘growth’ stories and projections, for example sustainable earnings and free cash flow,” the EY London press release said. of June 20.
Amid the backdrop of uncertainty, IPO investors right now are focused on “a clear path to profitability,” Gerring said.
“I see in the last half of this year and in 2023 companies that can convey growth and profitability rather than the growth at all costs that we saw in 2021,” he said.
Although IPO volumes are expected to remain low for now, companies are still preparing to hit the stock market one day, according to Gerring.
“Right now, we’re focused on really helping companies assess their path to going public, how they would go public, and really the readiness of the public company, making sure they’re thinking through and prepared for the demands of going public.” , said. he said, adding that at the end of the day, “you have to operate as a public company before you go public. So we’re finding that a lot of our clients are taking this time right now to really focus on that.”
Rebecca is a reporter for Yahoo Finance.
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