• IPO slump in 2022
• Burdened by economic uncertainties
• Prospects for increased IPOs
Inflation and the Ukraine war put numerous IPOs on a waiting list
While the IPO market was still booming in 2021, hardly any new companies dared to enter the trading floor in 2022 due to numerous economic uncertainties. Stress factors that prevented start-ups and spin-offs from IPOs included high inflation, the associated interest rate hikes, the war in Ukraine and delivery problems for individual raw materials and components, with the result that some IPOs were either postponed or even called off altogether.
Stabilization prospect likely to drive IPO market
However, the new year should bring improvements in the IPO market, experts at Citigroup expect. The most recent consumer data from the USA and Europe showed that price pressure is still at a high level, but that inflation rates are gradually weakening. Market participants are hoping that the end of the rate hikes by the central banks is getting closer. According to finews.ch, Citi strategist Valery Barrier does not expect the economic environment to fully recover in the next few months, but stabilization is likely to set in next year, which should then give new impetus to IPOs. From the second half of 2023, an increased volume of IPOs can therefore be expected. “The investor base for minority private equity placements has become more structured and has better defined processes,” Barrier said.
Migration from the crypto market could favor IPOs
Citigroup analyst Phil Drury also told the Bloomberg news agency in early November that an increase in IPOs was expected in 2023. “We’re seeing some normalization in private markets looking to sell either publicly or through mergers and acquisitions, and hopefully we’ll even see some IPOs next year,” said the head of technology and communications. In addition, the weakened IPO market in 2022 could benefit from the bankruptcy of the crypto exchange FTX and the resulting collapse in the crypto market. “If venture capitalists want to deploy their capital, they will consider which companies might be a little more defensive,” Drury surmised. “Which companies are able to flexibly design their business models in order to adapt to the circumstances and perhaps achieve profitability faster?” Investors could instead look for safer investments after price losses through investments in Bitcoin & Co.
The pace should pick up only slowly
However, according to Barrier, the fact that the economy has not yet regained its old strength will be reflected in the new year in that companies will continue to delay their planned IPOs or put them on hold. This is also due to the fact that investors are still undecided about how the high inflation rates of recent months and the energy crisis will affect companies’ balance sheets. Barrier’s colleague Holger Knittel also expects new entrants to slow down. There is a “gap between what sellers believe companies are worth and what buyers are willing to pay,” the head of Citi’s mergers and acquisitions department recently told media representatives, according to finews.com.
Leveraged finance sector under pressure
Especially in the area of leveraged finance, i.e. takeovers financed by debt capital, there is currently a strong imbalance between buyers and sellers, as Knittel noted. Due to the fact that the division lacks financiers, the market for leveraged finance is currently not functioning, according to the expert. This is partly because the financial market is changing at such a rapid pace that some areas are lagging behind.
No sign of IPO fatigue in the Persian Gulf
Even if the IPO year 2022 was rather weak compared to the previous year, regional trends could be identified. As of late November, IPOs in the Persian Gulf brought in $18.5 billion in 2022, Citi strategist Miguel Azevedo told Bloomberg. This represented nearly half of IPO revenue in Europe, Middle East and Africa. So far, higher revenues have only been achieved in the region in 2019, when the oil production company Saudi Aramco found its way onto the trading floor and took in 29.4 billion US dollars. The trend in the Persian Gulf should therefore continue in 2023, as the expert from Citigroup explained. “Next year should be at least as good as this year,” Azevedo told the agency. This is ensured by an increasing demand for regional assets, which comes from both local and foreign investors. While energy companies were more likely to be listed there in 2022, family-run companies and technology groups in particular are likely to follow in the new year.
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