IPO Trends in the USA Today

Erik Mills

6 min read

#IPO News Update: Sep 21, 2022

Intro

Going public is a turning point for companies. They use an Initial Public Offering to attract investment and acquire new positions on the market.

There was an IPO boom in the US in 2020. Basically, the boom is related to SPAC (Special-Purpose Acquisition Company) offerings — around 555 IPO transactions with overall proceeds of almost $200 billion.

In 2021, the global IPO market reached record levels in number of deals and proceeds — 2,436 IPOs worldwide with total proceeds of almost $460 billion and 1,073 IPO transactions with gross proceeds of more than $300 billion inside the US.  

Compared to the previous record year, worldwide IPO activity in 2022 experiences a dramatic slowdown — 630 IPOs with total proceeds of $95.4 billion so far.

What was IPO activity all about in 2020-2021, and how is it different from what 2022 has brought us?

Let’s summarize the main IPO trends of the previous years, review IPO trends 2022, and try to forecast the outlooks for the rest of the year.

What are the IPO trends in the USA today?

In this section, we use the term special-purpose acquisition company frequently, as it is one of the prominent IPO trends of 2020-2021. Some experts consider SPAC to be a bad idea for retail investors. Yet, others see it as a process of democratizing early-stage investment.

Andrew Smith, one of the chief strategists of the private equity fund Delos Capital Advisors, says:

“If you go and make an investment like that, you need to be prepared that you could potentially lose all of your money. You could potentially not have any return on your money because it takes two years for this to go through its cycle process of getting an IPO done.”

What was in 2020:

• 116 SPACs started in the third quarter (this accounted for 56% of the total number of initial public offerings for this quarter)
• in the fourth quarter, 87 IPOs through SPAC became 52% of the total
• for all of 2020, 50% of IPOs fell on SPAC

What is in 2021:

• Dominant companies

The first quarter is a record high since 2014. Ten IPOs debuted with over $23 billion. Among them are a variety of companies, although many were in the technology sector.

• Dominant sector 

80% of the initial public offerings are in the financial sector; 10% — healthcare technologies; 6% — tech services.

• Venture capital and private equity

Considering the amount of venture capital that IPOs attract, revenues are lower by $10 billion as compared to the fourth quarter of 2020. 

The dominance of SPAC is the reason for the decline in venture capital and private equity financing. The average activity of such IPOs over the past decade is about 48% per quarter. In the first quarter of 2021, there was a decrease to 7.4%.

• Mergers and acquisitions 

SPAC needs consolidation of companies which can lead to an increase in the number of mergers and acquisitions. From the beginning of this year to April, there were 112 mergers, while in 2020, there were 105.

Trends of  IPO POP in 2021

POP (Public Offer Price) is the value of individual shares set for the initial offering. 

It includes the following variables:

• Share prices of companies with similar business activities
• The growth potential of the securities issuer
• The IPO share price

The responsibility for defining the POP lies with the underwriters.

IPO POP in 2021 showed the following tendencies:

• The data shows that IPOs are less active in the market compared to the first quarter of 2020. Some debuts have failed, and the shares of some organizations have fallen.
  
• In April, there was a decrease of 20% in the average value of the initial public offer price. In May, the figure dropped to 18%. This data does not apply to SPAC.
  
• The IPO market has cooled significantly after a hot first quarter as shares in newly listed companies fell, and some high-profile debuts failed.
  
• In May, most of the debuting companies were growing. Although, some of the participants in the public market failed on the first day of trading.

IPO stock price trends

The inflation and increased interest rates put great pressure on the average IPO share price. The severity of inflation and the central banks’ response will determine how big of an effect these two aspects are going to have on the IPO market. 

Public listings have become appealing to startups due to high valuation multiples, however, this also creates a risk. Volatile price swings are not typical IPO behavior. This risk became apparent recently after many newly public companies underperformed in 2021. This may have an impact on the valuation of future issues and shape future IPO stock price trends.

IPO trends in 2022 

In contrast to the blooming global IPO activity in the previous year, IPO markets in 2022 show a considerable decline. The number and proceeds of global IPOs fell by more than 50% in the first half of 2022 year-over-year. 

Let’s review the main reasons for such an increased volatility in the American and European IPO market and outline general trends of the IPO activity in the US and worldwide.

General facts about IPO activity in 2022

• The general IPO deal size and the number of IPO transactions have dropped by more than a half in the H1 2022 compared to the previous year. There’s a sharp decline in most major markets, with the American IPO market showing the biggest decrease — only 77 deals with total proceeds of $5 billion. 

• Heightened volatility caused by geopolitical tensions in the world, macroeconomic factors, declining valuation, and low post-IPO share cost performance on equity markets is the main reason why many IPOs were postponed.

• Despite the overall decline of global IPO activity, Asia-Pacific IPO markets have shown better performance — 367 IPO deals with the total proceeds of $66 billion.

• Due to the tightened market liquidity and considerable decline in stock prices of the companies that went public last year, investors now are more selective when considering IPO candidates. They pay more attention to the fundamentals of the business instead of simple growth stories and projections.

• The technology sector continued being the leader in the number of 2022 IPO deals conducted, but the average IPO deal size decreased from $230 million to $137 million.

• The 10 largest global IPO deals raised around $40 billion, with energy dominating three of the top four transactions. Thus, the energy industry replaced technology companies as the top IPO fund-raiser of the previous years.

• The energy sector is now a leader in proceeds, with average deal size increasing from $198 million to $680 million year-over-year.

• The top 9 countries by the global IPO proceeds are China, UAE, United States, India, Saudi Arabia, Hong Kong SAR, Italy, Canada, and Australia.

• Cross-border activity of IPO deals has also experienced a significant fall, mainly due to the geopolitical tension in the world. The number of cross-border IPO deals dropped from 99 (with total proceeds of $43 billion) in 2021 to 37 (with total proceeds of $1.9 billion) in 2022. However, the US remains the leading destination for cross-border IPO transactions.

SPAC IPOs 

The SPAC market in the US has also experienced challenges in H1 of 2022.

• There were only 17 SPAC IPOs in the US, with total proceeds of $2.2 billion.

• Strong headwinds in SPAC IPO activity are aggravated by the new SEC regulations that will result in increased regulatory hurdles.

• Investors mainly lose interest in the SPAC market because the private company merger market is exceptionally competitive now.

Prospects

What IPO trends 2022 to expect in the second half of the year?

• The volatility of the global economy and global IPO market is likely to remain in the H2 of 2022 due to the ongoing geopolitical tensions, weak capital markets performance, and pandemic.

• Environmental, Social, and Governance (ESG) criteria will remain a critical factor for potential investors when deciding on IPO candidates. Companies with ESG embedded in their values and operations are more likely to get investor’s attention and higher valuation.

• Considering the fact that many huge IPO deals were postponed in the first half of the year, the second half might be marked by their completion. 

• Energy and technology sectors are to keep their leading positions in the number of IPO deals and proceeds, but the focus will be placed on renewable energy because of the upcoming raise in the oil price.

The largest 2022 IPOs in the US so far 

As of July 2022, the largest IPO in the US still remains Alibaba Group Holding Limited at nearly 22 billion U.S. dollars. It’s followed by Visa and the energy company ENEL SpA.

Key takeaways

Let’s summarize the IPO facts and figures we have so far in 2022:

• Global markets are experiencing a dramatic decrease in the IPO activity compared to the previous year.

• Global tensions and macroeconomic factors are the main reasons for the decline of the global IPO activity.

• The American IPO market demonstrates the biggest decline in the number of IPO deals and their proceeds compared to other regions.

• Investors are now more selective when deciding on IPO candidates and pay more attention to the company’s core values.

• Technology and energy sectors are leading in the number of IPO deals and the average IPO deal size.

• The decreasing tendency is likely to remain in the second half of the year, however several mega IPO deals that were postponed may be conducted till the end of 2022.

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