The Stock Market Volatility, Rising Interest Rates, and Asset Losses Hit the Banking Sector and Make the IPO Market Cold This Year, with No Signs of Improvement in 2024.
As of December 19, 108 companies have priced their stock offerings in U.S. markets, a 52% increase from the same time last year. This is the third lowest number in the past decade and 73% lower than the record highs achieved two years ago.
Similarly, the proceeds from equity offerings by companies with a market capitalization of at least $50 million rose to $19.4 billion, compared to $7.7 billion in 2022, but this represents an 86% decline from $142.4 billion during the same period in 2021.
Rate Hikes by the Federal Reserve Close the IPO Tap
Initial public offerings in the United States declined in 2022 due to rising interest rates as the Federal Reserve began its campaign to combat the worst inflation in four decades. Higher interest rates increase borrowing costs for startups and provide more competition for potential investors.
The IPO market has not yet recovered, especially after the frenzy surrounding special purpose acquisition companies (SPACs), which pushed IPO proceeds in 2020 and 2021 to higher levels than the past five years combined.
Moreover, companies that took their stocks public this year are struggling to attract investor interest: even though AI chip designer Arm Holdings PLC saw its stock rise by 25% on its first trading day in September, the largest IPO in two years, the IPOs in the last third quarter recorded a net loss of 32%.
No Specific Market Signals Indicating a Recovery in the IPO Market – Yet
Pitchbook Data, a specialized analytics company in private equity and venture capital markets, stated that the slowdown since early 2022 has led to a backlog of venture-backed companies waiting to go public.
Pitchbook reports that this backlog includes about 220 companies, which means that when more favorable financial market conditions arise, “there could be a rush of companies seeking to take advantage of the market shift.”
However, Avalos mentioned that Caplight’s trading platform currently has more private stocks listed for sale compared to the private stocks being sought – indicating that a recovery in the IPO market is not anticipated.
Not Completely Frozen
Pitchbook indicates that some IPO candidates may simply have to reset their expectations or continue to wait.
However, Avalos pointed out that there are some IPO candidates for 2024. The online car rental company Turo has seen strong demand in the private equity market ahead of the IPO and has raised nearly $500 million in funding so far.
The Chinese online fashion company Shein filed for an IPO in the United States at the end of November. Some reports suggest that it will seek to raise up to $90 billion when it begins selling shares, although it will need to overcome questions related to labor allegations in its supply chain.
Published reports also indicate that the giant social media company Reddit, which filed an IPO prospectus in 2021, may be reconsidering raising up to $15 billion. Data analytics company Databricks, valued at around $43 billion, is also a potential candidate. The digital payment processing company Stripe, which took steps for an IPO two years ago, may seek up to $50 billion.
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