US IPOs rise in H1 but lag 2021 boom: EY

Dive Brief:

U.S. initial public offerings during the first half of 2023 raised $8.8 billion, an 87% jump compared with the same period last year but only about one-tenth the $84.2 billion surge in IPO proceeds during the first six months of 2021, EY said. During the first half of last year, U.S. IPOs raised a paltry $4.7 billion.
Nearly half of the U.S. proceeds from January through June stemmed from the $4.4 billion IPO in May by Kenvue, a divestment by Johnson & Johnson of its consumer health care business. Still, an improving investor mood and increase in the number of start-ups seeking another round of funding suggest that the U.S. IPO market may quicken in the months ahead, according to Mark Schwartz, the Americas IPO and SPAC advisory leader at EY.
“Despite the continued slow pace of IPOs, recent improvements in market sentiment and the uptick in follow-on activity could be a harbinger for brighter days in the IPO market later this year or next year,” Schwartz said in a statement.

Dive Insight:

Declining inflation, a fall in the price of oil and other commodities, comparatively low equity price volatility and gains for growth stocks may set the stage for recovery in IPOs, EY said. Renewed stability in the banking system following the March collapse of Silicon Valley Bank and two other financial institutions may also encourage companies to sell shares publicly.

EY tracks other factors to forecast the future for the IPO market, including equity valuations and the Federal Reserve’s stance on interest rates, according to Schwartz. It also monitors geopolitical turbulence and trends in earnings estimates.

CFOs and their C-suite colleagues considering an IPO should start preparations, EY Americas IPO Leader Rachel Gerring said.

“Now is the time to activate your IPO plans and build muscle around operating as a public company,” she said in a statement. “Preparation is key to capitalize on potentially fleeting market windows with confidence.”

The number of IPOs will likely rise worldwide during the next six to 12 months given the prospect that Beijing will further stimulate China’s economy and central bankers this year will end rate hikes, EY said.

So far this year, IPOs worldwide have lagged the total for the first six months of 2022. Amid weak economic growth, tight monetary policy and geopolitical tensions, 615 IPOs raised just $60.9 billion, registering declines of 5% and 36%, respectively, compared with the first half of last year.

“High interest rates and poor post-IPO share price performance have also pushed investors to look for other investment asset classes,” EY said.

Companies this year have listed on global markets at lower, “more sustainable valuations” compared with the first six months of 2022, EY said. As of June 19, 32% of IPOs listed in 2023 traded below their offering price compared with 45% for those that went public last year.

Investors in coming months will probably focus on technology companies, stocks that leverage a focus on environmental, social and governance best practices, and businesses that show successful adoption of artificial intelligence, EY said.

Referring to big share offerings such as the Kenvue IPO, EY said, “we expect more large corporate spin-offs and carve-out listings will take place in other major markets as companies seek to increase shareholders’ value.”

During the second quarter, two of the five largest U.S. IPOs were carve outs from large companies, EY said, adding that several similar transactions are “in the pipeline.”