The boffins at EY expect investors to have more IPO options to choose from later this year, after a lean 2022.
Capital raised through initial public offerings has been very hard to come by on the ASX in the 2023 financial year so far, with just $1.17 billion raised, compared with $26.6 billion at the same point last year.
The general manager of listings at the ASX, James Posnett, told Proactive Investors in December that it had been a tough year for IPOs.
“There’s no doubt it’s not been the best year for IPOs, but we’re expecting this year to be better,” he said.
IPO market set to turn
And a new report from consultancy firm EY suggests Posnett’s optimism is well-founded.
“Looking ahead to 2023, there is a strong IPO pipeline on the horizon,” Paul Go, global IPO leader at EY, wrote.
“Even though IPO activity will likely remain sombre through at least the first quarter, more favourable conditions seem to be set in place for global IPO activity to regain greater momentum by the second half of the year.”
EY cautions, however, that this turnaround hinges on a number of macroeconomic conditions, including lower inflation, stabilised interest rates and eased geopolitical tensions.
A poor 2022…
Those macroeconomic conditions led to a very sparse IPO market throughout 2022, according to Posnett and EY.
“They meant the market became very volatile, and when it is volatile it is very difficult to execute an IPO,” Posnett said.
EY’s report found that globally, IPO volumes fell by a whopping 45% in 2022, with proceeds taking a 61% downward hammering.
“Throughout 2022, global IPO activity was impacted by increased market volatility and other unfavourable market conditions, along with the dismal performance of many IPOs listed since 2021,” Go said.
“Amid an environment defined by higher inflation and rising interest rates, investors have spurned new public companies and turned to less risky asset classes.”
…but a promising 2023
While both Posnett and EY agree that it will likely be a slow start to the 2023 calendar year for IPOs, there is plenty coming for investors to be excited about.
“Many prospective IPO companies are still going to take the wait-and-see approach, holding out for the right window,” Go said.
“For now, investors will focus on a company’s fundamentals, such as revenue growth, profitability and cash flows, over just growth projections.
“As the pipeline continues to build, many companies are waiting for the right time to revive their IPO plans.
“Still, with tightening market liquidity, investors are more risk-averse and favour companies that can demonstrate resilient business models in profitability and cash flows, while clearly articulating their ESG agendas.”
Posnett told Proactive Investors agreed that the wait-and-see approach would hold for some months, before turning around the end of the financial year.
“The conversations we’re having with a number of companies that are in the pipeline suggests we’re going to get some really meaningful interest next year, particularly around the middle of the year,” he said.
“Typically what we see in this cycle are large, lower risk companies come to the market and IPO first, and that begins a trend where higher growth, higher risk companies come back to the market as well.”
- Daniel Paproth