Dive Brief:

• U.S. initial public offerings raised $18.8 billion in 96 deals during the first nine months of this year, gains of 161% and 20%, respectively, compared with the same period last year but well below the levels in 2021, EY said. 
• Even without a recent IPO by Arm Holdings, the U.S. IPO market would have grown during the first nine months compared with the plunge in proceeds during the same period in 2022, EY said. Arm, a U.K. designer of semiconductors, went public on Sept. 14 at a valuation of about $54.5 billion. As of Monday, its share price has fallen more than 10% below the closing price on its first trading day.
• “Recent subscription levels and pricing for marquee IPOs was generally strong, despite tempered expectations,” Mark Schwartz, the Americas IPO and SPAC advisory leader at EY, said in a statement. “But early post-IPO performance was fairly muted, leading to a cautious outlook for a broader rebound in IPO activity later this year and into early 2024.”

Dive Insight:

Investors on a global basis this year have viewed the IPO market with caution. The number of deals worldwide during the first nine months of 2023 fell 6% to 350 and proceeds shrank 27% to $38.4 billion compared with the same period last year, EY said, citing IPOs completed through Sept. 18 and those expected by Sept. 30.

“Faced with tighter liquidity and a higher cost of capital, investors are turning to companies with strong fundamentals and a path to profitability,” George Chan, EY Global IPO leader, said in a statement.

Borrowing costs have surged and banks have sharpened lending standards as the Federal Reserve pursues the most aggressive monetary tightening in 40 years.

Policymakers on Sept. 20 raised the benchmark interest rate a quarter percentage point to a range between 5.25% and 5.5%. They also signaled plans for another hike this year and indicated that they will probably keep rates high for longer than they forecast in June.

“The ‘higher for longer’ narrative and the fear of recession are among the most prevalent macro headwinds to a resurgence in the IPO market,” Schwartz said in an email response to questions. “On the deal side, we likely need to see better aftermarket performance so investors can make money in these deals which will fuel additional excitement and interest.”

IPO proceeds for the technology sector rose 9% to $29.3 billion during the first nine months of 2023 but would have fallen without the Arm deal, EY said. Like Arm shares, Instacart stock has fallen since its IPO debut last month.

“In a number of sectors, including some tech verticals that are typically disproportionate sources of IPO activity, valuations and multiples have come down meaningfully,” Schwartz said. “This valuation reset is causing some companies to realize that they must accept lower valuations if they want to go public in this market.”

IPO proceeds in mainland China plummeted 37% during the first nine months of this year after a 30% gain for the first three quarters of 2022, EY said.

“Companies wishing to go public are expected to undergo a more rigorous vetting process and lengthier registration procedure as regulators seek to curb the pace of IPOs to balance financing and investment,” EY said.