IPO market: Investor appetite shifts from growth to value amid tighter liquidity

• Global IPO volumes fell 5%, with proceeds down by 32% nine-month YOY
• Emerging markets made up 77% of the global share by number and 75% by value
• Greater China remained as global leader in numbers, with Shanghai and Shenzhen remained as the top exchanges by proceeds

Globally, the first three quarters of 2023 recorded 968 IPOs with US$101.2b capital raised, a 5% and 32% decrease year-over-year (YOY), respectively. Despite this, market momentum is building, with Q3 having witnessed a notable improvement in post-IPO share price performance compared with previous quarters. Three quarters into 2023, the global IPO market has seen shifting dynamics featuring improved market sentiment in major Western countries, the prospect of high-profile US IPOs, robust emerging markets and a cooling China IPO market. These and other findings are available in the EY Global IPO Trends Q3 2023. 

In the past decade, IPO numbers and proceeds from emerging markets have both increased by more than 30%, primarily due to faster economic growth compared to developed countries. Until this point of 2023, emerging markets accounted for 77% of the global share by number and 75% by value. They embraced new entrants to the active IPO arena, such as Turkey and Romania, in addition to the already thriving countries like Indonesia, Malaysia and India. In developed markets, the US witnessed a higher number of larger deals, while Japan and Italy contributed to the growth of smaller deals.

The technology sector continues to dominate global IPO activity in 2023. However, if excluding the blockbuster chip designer IPO, the entire sector would register a decline in proceeds. There hasn't been substantial growth in IPO debuts for artificial intelligence (AI) startups, but they are beginning to emerge in the IPO pipeline. Industrials moved into the second spot amid solid expansion across most of its subsectors. Unicorn IPOs, on the other hand, have experienced a substantial decrease in volume and proceeds of more than 80% YOY, notably in classic growth sectors such as technology, and health and life sciences.

Overall post-IPO share price has improved across APAC

The initial nine months of 2023 present a mixed picture for Asia-Pacific IPOs, with volume and proceeds down YOY by 8% and 41%, respectively, even though the region presents an approximate 60% share of global market share. Governments across most of the region are trying hard to stimulate economic growth and IPO activity through initiatives such as reducing stamp duty taxes. Also, due to softness in key markets, Asia-Pacific saw fewer deals the past two years. There is general optimism over large deals in the pipeline, with an expected modest uptick in IPOs next quarter or early 2024.

Companies wishing to go public in Mainland China are expected to undergo a more rigorous vetting process and lengthier registration procedure, as regulators seek to curb the pace of IPOs to balance financing and investment. Despite the tightening measures, companies aligned with national strategies and industrial policies still have the opportunity to conduct IPOs by listing on the Beijing Stock Exchange, which actively supports the listings of innovative small and medium enterprises (SMEs). There are also sights that A-share IPO applicants are changing their listing destination to overseas and Hong Kong exchanges. Despite the slowed growth, Chinese exchanges continued to lead the number of IPOs globally, with volume and proceeds down YOY by 11% and 40%. Shanghai and Shenzhen remained as the top Exchanges by proceeds, raising US$8.928b and US$6.536b respectively.

Q4 2023 outlook: new interest rate environment

George Chan, EY Global IPO Leader, says: “Faced with tighter liquidity and a higher cost of capital, investors are turning to companies with strong fundamentals and a path to profitability. In response, IPO prospects need to demonstrate their financial health and potential for value creation. As valuation gaps narrow, investors are reviewing the post-listing performance of the new cohort of IPOs, which, if positive, could renew market confidence.”

Across major Western economies, interest rates are forecast to stay high, as central banks try to bring persistent inflation down to target levels. Consequently, the cost of capital remains elevated, which, along with tighter credit, makes financing more challenging. 

Investors will continue to care more about the fundamentals such as a strong balance sheet, healthy cash flows and resilience amid weak economic conditions rather than how fast the company can grow and how high the valuation could reach. Investors are also likely to be more interested in companies with an ESG concept and those that can demonstrate the adoption of AI application into the business models and operations. 

IPO candidates will need to be agile with innovative business models, be resilient when facing supply chain constraints and macroeconomic challenges, have strong working capital and be able to adapt to new ways of doing business by embracing technology and AI applications. 

Terence Ho, EY Greater China IPO Leader, says: “Although ASEAN and Japan’s IPO market remains robust, the broader Asia-Pacific region saw slower activity in the past two years due to softness in key markets, including Greater China and Oceania. A regional rebound is anticipated as the Mainland China and Hong Kong markets recover. There are also great signs along the IPO pipeline in Hong Kong, where a large scale spin-off deal is aiming to raise at least US$1b.” 

-Ends-

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About the data 

The data presented here is available on ey.com/ipo/trends. Q3 2023 refers to the third quarter of 2023 and covers completed IPOs from 1 July to 18 September 2023, plus expected IPOs by 30 September 2023 (forecasted as of 18 September 2023). Q3 2022 refers to the third quarter of 2022 and covers completed IPOs from 1 July to 30 September 2022. YTD 2023 or Q1-Q3 2023 refers to the first nine months of 2023 and covers completed IPOs from 1 January 2023 to 18 September 2023, plus expected IPOs by 30 September 2023 (forecasted as of 18 September 2023). All data contained in this document is sourced from Dealogic, Oxford Economics, and EY analysis unless otherwise noted. The Dealogic data in this report are under license by ION. ION retains and reserves all rights in such data. SPAC data are excluded from all data in this report, except where indicated.

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