Ernst & Young (EY) does not initially expect any major IPO movements in 2024. However, an improving macroeconomic backdrop could attract investors back to IPOs.
• Total proceeds from IPOs decreased in 2023
• Weakening inflation and possible interest rate cuts could support 2024
• Ten to twelve German IPOs expected
Rachel Gerring, Head of IPO at EY Americas, gave her predictions for the 2024 IPO landscape in an interview with “Bloomberg Technology” and spoke, among other things, about guidelines for companies planning their IPO. Gerring said that EY is optimistic that the recovery in the IPO market will continue in 2024 given the improving macroeconomic backdrop.
2023: IPO market landscape has changed
As Ernst & Young writes in its quarterly study “EY Global IPO Trends 2023”, the global IPO market landscape has changed in 2023. For the global IPO market, 2023 ended with 1,298 IPOs raising $123.2 billion, according to EY data. This means that the total proceeds from the IPOs are lagging behind those of 2022, although the deal volume has increased in the Americas and EMEIA regions.
Although strong stock markets typically correlate with increased IPO activity, according to EY, companies remained cautious when it came to IPOs in 2023 despite a strong market. According to EY, the following factors can ensure that the IPO trend develops contrary to the stock market trend: On the one hand, the “aggressive tightening of the IPO activity is likely to have an impact on IPO activity monetary policy“. In addition, the gains on the stock market in 2023 were “strongly concentrated on mega technology stocks.” Meanwhile, the “disappointing after-market performance” reflects the continued inconsistent valuation expectations between issuers and investors, as well as the “growing spectrum of investment alternatives with increasing “Returns that attract investors”. Geopolitical tensions can also cause investors to be cautious and thus shake the markets.
Outlook for 2024
However, easing inflation and possible interest rate cuts in 2024 could improve liquidity and return prospects and attract investors back to IPOs, according to EY’s report. However, continued geopolitical instability could undermine confidence. A revival of the IPO market in 2024 largely depends on the improvement in the macroeconomic backdrop, “as companies eagerly await more favorable market conditions for expanding IPO windows.”
Another report from George Chan, EY Global IPO Leader, said in the outlook for 2024 that enthusiasm for IPOs is high and “smaller deals with improved after-market performance” are emerging. Many governments would “take measures to stimulate IPOs.” Meanwhile, “activity is particularly strong in high-growth economies.” EY recommends IPO candidates to keep an eye on “building fundamentals and managing price expectations” before monetary policy is eased and the geopolitical environment stabilizes. This means they could benefit from “the temporary time windows” over the course of the year.
Candidates planning an IPO in 2024 should be well-prepared and consider key factors such as “inflation and interest rates, government policies and regulations, recovery in economic activities, geopolitical tensions and conflicts, ESG agenda and global supply chain,” according to Chan. In addition, all options such as alternative IPO processes or other financing methods should be considered.
EY expert: IPO market is picking up again
There is also a decline in the IPO market in Germany. According to EY, there were only five classic IPOs in 2023, reports manager magazin. Birkenstock, SCHOTT Pharma, thyssenkrupp nucera, IONOS and Neon Equity went public and SMG Technology Acceleration, a special purpose acquisition company (SPAC), also ventured onto the stock exchange floor. In addition, more and more companies are choosing to list on foreign stock exchanges. For example, the French majority owner of Birkenstock chose the New York stock exchange due to greater growth potential.
According to Martin Steinbach, listing expert at EY, there is a backlog in the IPO market. “Many companies are waiting for the right time to master the IPO with good preparation,” said Steinbach, according to manager magazin. “However, as market liquidity becomes tighter, investors are becoming more selective, favoring companies with sustainable business models that can demonstrate strong profitability metrics while clearly articulating their ESG agenda.”
However, according to the expert, things could look better for the German IPO market in 2024. “Interest rates and the economy are the most important factors in the environment that have to be right. But the price rally of the past few weeks and the low volatility shown by the VDax are definitely positive. There is no question whether the IPO market will return starts, but when,” the Börsen-Zeitung quoted the expert as saying. Steinbach expects ten to twelve German IPOs in 2024.
Editorial team finanzen.net
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