What Will the IPO Market Look Like in 2023?

Sometimes it can be astonishing how much one single calendar year can affect global markets. In 2022, virtually all of the market optimism and wave of IPO activity from the year before rapidly dried up–leaving 12 months of aggressive economic headwinds and a widespread fear among companies that had been seeking to go public.

In the United States, Liberum data suggested that IPO volume in 2022 fell to just $6.2 billion, with only two listings raising more than $250 million each. This problem was far from isolated to the U.S., with Europe struggling significantly but for the €7.9 billion raised by a blockbuster Porsche AG Preference Shares listing in the second half of the year. 

As we can see from the correlations between the Nasdaq Composite Index, NYSE Composite, S&P 500, Russell 2000 and Nasdaq-100, 2022 sparked comprehensive retraces across the board of major U.S. indexes–undoing much of the accumulation gained in the immediate wake of the Covid-19 crash in early 2020. 

As we look at another year in the wake of widespread Covid-19 uncertainty and other geopolitical impacts on economies around the world, it’s worth asking whether the U.S. IPO drought is set to continue–or whether fresh optimism can flow back into the markets? 

Glancing at 2022 in the Rear-View Mirror

2022 was a profoundly tough year for the IPO market with the number of new listings falling by 45% to 1,333–while the amount of proceeds raised fell by a sizable 61% margin to $179.5 billion, according to EY data. 

The fallout was caused by more firms putting their IPO ambitions on ice as a bear market took hold throughout stocks and shares. Owing to factors like high inflation, rising interest rates and slower growth from a variety of contributing factors, confidence in the markets fell and investor appetite for risky investments collapsed. 

Here, it’s crucial to remember that 2022’s decline in activity came off the back of a record 2021, which means that listing activity remains relatively high. 

For IPOs throughout the Americas, 2022 represented the worst year for listings since the financial crisis. In Europe, the year-on-year decline was even more pronounced as Russia’s war in Ukraine caused greater economic difficulty. Elsewhere, Asia-Pacific continued to thrive, recording some 60% of the world’s IPOs in terms of volume and money raised. This was down in no small part to China’s outperformance thanks to looser regulations bringing on greater listing numbers. 

Can Investors be Optimistic for 2023?

Can we be optimistic for a market turnaround in 2023? Overall, analysts appear to be more buoyant about the prospects of the near-future when it comes to IPOs, but many continue to warn that investors should remain vigilant. 

Adena Friedman, President of Nasdaq, remains optimistic that 2023 will ultimately become a prosperous year for listings. 

“We are hopeful that the second half of ’23 becomes an opportunity for companies to get out, but I would expect a quiet first half,” she noted in an interview with Reuters.

Other market experts are looking for indicators of falling market volatility as a potential green light for new listings to emerge. 

“For the opening of the IPO window, it is also important that the VIX (volatility index) falls below 20 because, historically, if it is above 20, companies have a hard time pricing due to high volatility,” said Maxim Manturov, head of investment advice at Freedom Finance Europe.

“At the moment, many companies have already filed with the SEC and are in ‘standby’ mode. This pause in the IPO can also be characterized positively, as many companies have started to change their business models (correcting deficiencies, improving financial performance). Overall, given a large number of IPO orders, some companies are able to ‘probe’ the market,” Manturov added.

The current lull in market conditions can potentially pave the way for stronger IPOs from companies that have used the spare time to prepare their offering accordingly, according to Alex Wellins, co-founder and managing partner of the BlueshirtGroup.

“Companies considering an IPO in the next two years must remember that starting early is key. Every significant IPO buyer wants to meet a company several times before the IPO roadshow. Smart management teams will take advantage of this lull in the market to plan, set messaging, meet with top investors and equity research analysts and create an IR strategy well in advance of its eventual IPO,” Wellins explained.

Opportunities for Cautious Listings

Here, it’s worth remembering that many of the economic headwinds that have prompted widespread market volatility haven’t cleared by any stretch of the imagination. The world is still in the process of settling in the wake of the disruption caused by Covid-19. As a result, both inflation and interest rates remain high while supply chains continue to struggle as the virus continues to linger. Russia’s conflict in Ukraine has led to drastic economic sanctions that’s impacting Europe and will continue to do so over the coming years. 

Despite these headwinds, many key market players are confident of a stronger year in 2023. According to a survey conducted by KPMG, 16% of UK Capital Markets (ECM) leaders expect IPO activity to pick up in Q1 2023 and 72% believe an upturn can take place in the second half of the year. 

There’s also a strong pipeline of companies that we can expect to provide a major IPO market boost when it’s time to go public, including the likes of Stripe, Reddit and Discord. 

While many firms readying to IPO are more likely to wait for their ideal market window to reopen, others don’t need to rush into going public due to stronger levels of investment they received in prior funding rounds. 

Calmer waters ahead can help businesses to accurately plan out their IPO and to go public with minimal complications. 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.