Easing inflation and possible interest rate cuts may revive global IPO activity in 2024, attracting investors with improved liquidity and return prospects, research shows.
Looking ahead to the next year, 40 percent of private company CEOs say they are considering IPOs, divestments and spin-offs as they reassess portfolios, aiming to capitalize on a potential resurgence in activity next year, according to the Ernst & Young (EY) Global IPO Trends Q3 2023 report.
Despite offering an optimistic outlook for the upcoming year, the report - which scrutinized IPO data collected by EY and third-party data providers throughout the year – also emphasizes the importance of thorough preparation for IPO candidates.
‘Although the after-market performance of recent deals may impact future IPOs, it is crucial for IPO aspirants to build trust and confidence among key stakeholders,’ says Rachel Gerring, EY Americas IPO leader.
‘Have the right management team in place, demonstrate a track record of performance, and show a predictable path for growth and profitability. Companies need flexibility to capitalize on fleeting market windows, and proper preparation facilitates strategic optionality.’
Furthermore, resilience, robust fundamentals and managing price expectations will be critical in capitalizing on fleeting IPO windows.
‘Enthusiasm for IPOs is high and smaller deals are emerging with improved after-market performance. While many governments are taking measures to boost IPOs, activity is particularly strong in high-growth economies,’ says EY Global IPO leader George Chan.
‘Before monetary policy eases and the geopolitical climate stabilizes, IPO candidates should keep their eyes on building fundamentals and managing price expectations to capitalize on the fleeting windows as 2024 progresses.’
A ‘rocky road’
The global IPO scene in 2023 was a tale of contrasts, characterized by a downturn in overall volumes and proceeds while witnessing emerging hotspots and varied performances across continents, the report also finds.
The volume of deals fell by 8 percent and the capital raised plunged by nearly 40 percent to $123.2 bn compared with 2022.
However, specific regions, particularly the US and EMEA, witnessed an increase in deal volumes, marking a respective surge of 15 percent and 7 percent compared to the previous year.
The research also highlights that 2023 witnessed smaller-cap deals in emerging markets surpassing larger offerings, yet many IPO candidates hesitated due to valuation mismatches between issuers and investors.
Markets like Indonesia, Malaysia and Turkey surpassed traditional IPO hubs in both deal volume and proceeds, when benchmarking their performance against a 5-year average of IPO activity. India, Saudi Arabia and Thailand also showed increased IPO numbers compared to their respective 5-year averages.
Several developed markets faced slowdowns, including Hong Kong which this year hit a 20-year low in listings due to liquidity challenges, subdued investor sentiment, interest rate hikes and strained China-US relations. The number of IPOs dropped by 16 percent in the country this year to 63 companies going public over the past 12 months, while the number of proceeds fell by nearly 60 percent.
In the UK, persistent inflation and high-interest rates led to significant declines in deal-making momentum. Yet, there's optimism that the UK regulator's efforts to streamline listings could spur activity in the upcoming year.
‘After a rocky road in the previous year, 2023 saw a transition to a more stable environment offering signs of an IPO market thaw,’ says Martin Steinbach, EY EMEA IPO leader.
‘With a significant backlog waiting on the sidelines, it remains a matter of when and not if activity will get back into full swing, which should make 2024 a busy year.’