Companies that go public benefit in several ways. Their liquidity increases while brand recognition increases as well as prestige of being publicly traded. Employees may even receive stock or options as incentive compensation.
But the IPO market can be unpredictable. What factors influence deal activity, and can an organization survive an economic downturn while making an impressive debut?
Recessions
Recessionary times often see investors shifting focus toward risk and price stability, reducing appetite for new listings resulting in lower volumes and deals.
However, initial public offerings (IPOs) remain an essential element of capital markets. They can serve to signal confidence in growth industries, give an inside view into government economic and geopolitical policies, or allow companies to reduce debt through listing shares or spinning off businesses.
Even amid an unstable market environment, initial public offerings (IPOs) continued to remain active last year. Both volume and value saw increases across regions worldwide, led by APAC which saw US$107.4 billion of IPOs and 967 separate listings (excluding SPACs).
US listings accounted for 89% of total listings (excluding SPACs). Consumer IPOs led with 27 IPOs; TMT and industrials both saw 23 listings each; health/life sciences had 10; energy had 14 offerings, and financials 12. APAC had the second-highest volume with 107 deals, predominantly coming out of China, Hong Kong, Singapore and Australia.
Pandemics
COVID-19's rapid spread wreaked havoc with global markets early in 2020, creating initial market instability and uncertainty which dampened investor appetite for companies seeking public funding. A significant portion of the IPO market closed, producing just 388 IPOs with raising US$69 billion - this marked their worst performance both volume-wise and value wise since 2016.
However, in the second half of 2016, an IPO revival could be felt globally; 619 listings and an incredible US$162.3 billion total deal value increased 33% year-on-year - led by resilient sectors such as technology, healthcare and consumer goods.
Particularly notable was the success of special purpose acquisition companies (SPACs), or shell companies created specifically to raise money and buy another firm rather than operate independently as independent public firms. This alternative approach enabled investors to access new issuances even as traditional IPO approaches became unavailable.
Wars
IPOs can serve as an early barometer of a business's strength and potential growth; so it's wise to carefully consider any external events that could impede your plans to go public.
Investor sentiment and market conditions play a crucial role. Positive investor sentiment can result in increased investor demand and successful pricing for new listings; while negative investor sentiment could result in lower demand and weaker performance for newly listed companies.
Due to geopolitical tensions, trade protectionism and elections IPO activity has been somewhat unstable recently. With an enormous backlog and plenty of dry powder available for investment there remains optimism that the IPO market will rebound soon. On this episode of Powerful Insights Protiviti Managing Directors Susan Alexander, Brad Rachmiel, Charlie Soranno and Nick Spinks discuss the global IPO market as well as some key issues and concerns organizations need to consider when conducting their own IPO processes effectively.
The Lessons of History
IPO activity can be affected by global factors like economic conditions, geopolitics, supply chain disruptions and domestic market dynamics; however strategic industry priorities can also significantly shape IPO trends.
Asian companies are increasingly opting to list on US exchanges, realizing the increased visibility and investor demand associated with listing on one of the world's major markets. Tech IPOs (including Reddit and Hygon Information Technology ) now account for a substantial proportion of total deals (excluding SPACs ).
IPO trends reflect more on corporate management capabilities and priorities than specific economic conditions. Companies who fail to implement adequate systems for accurate financial reporting and compliance risk missing their opportunity as public firms; losing investor trust could prove disastrous for those companies that lose it.