From the best of times to the worst of times: The 2022 IPO market has fallen off a cliff.
Faced with high inflation and rising interest rates, investors have abandoned high-growth growth stocks and turned to safer, more profitable alternatives.
The decline was striking given the record level of returns raised through the public markets just a year ago. US-listed companies raised over $155 billion in proceeds through their initial public offerings in 2021. on data from EY and Dealogic. In the first half of 2022, they only raised $4.8 billion.
“Investors are really risk averse at the moment, and that’s what’s really driving the lack of activity we’re seeing,” Rachel Gerring, head of IPOs at EY Americas, told CNBC in an interview. “They’re looking for companies that are more focused on growth and profitability than the growth at any cost that we saw in 2021.”
Part of the logjam in IPOs was due to the dismal performance of companies going public in 2021, Gerring said. The decline also hit the market for special purpose acquisition companies, also known as SPACs, which were used as an alternative vessel for private companies seeking to enter the public markets.
“There are hundreds and hundreds of SPACs that are already public and looking for a merger partner, and every new SPAC IPO will compete with those hundreds of other SPACs,” said Jay Ritter, an IPO expert and University of Florida professor. interview with CNBC. “That’s why it doesn’t make sense for a SPAC to go public now rather than waiting a year for all that competition to disappear.”
Watch the video above to find out how the IPO market went from boom to bust in 2022 and whether experts predict a recovery in 2023.