The U.S. IPO market is almost completely frozen and few companies are navigating a perilous environment of market volatility, rising interest rates and low investor appetite for new issuance. The poor performance of companies that recently completed initial public offerings only strengthened their grip this winter.
How cold is the cold?
How much have US IPOs fallen? Quite a lot. In the recently completed quarter, U.S. IPOs fell 87.5%, and funds raised fell nearly 98% compared to the first quarter of 2021, when new issuance peaked. Only 52 companies went public in the US in the third quarter, raising $2.8 billion.
If we count only traditional IPOs in Q3, the numbers are even worse, with only 44 IPOs raising $2.7 billion. And there are no budding signs that IPO activity could surge to close out the year.
Looking at the market as a whole through the third quarter of this year, there were a total of 702 IPOs in the US, China and Europe, raising just over $121 billion. Of these IPOs, 96 were by SPACs, raising $14.9 billion. More than 53% of these 702 IPOs chose to list on Chinese exchanges, including Hong Kong.
In an indication of market weakness, 60 companies scaled back while they scaled up. Relatively few IPOs in the US, China and Europe scaled back in 2021, with 145 downsizing compared to 470 downsizing.
Despacing IPO data
The recent SPAC frenzy and subsequent US slowdown have made direct comparisons to other markets more difficult. Raw numbers can tell a misleading story.No other global market has embraced special-purpose acquisition companies with such enthusiasm.
Another consideration when comparing IPO markets is that some markets tend to produce more IPOs but have lower valuations. Larger IPOs are usually driven by more successful companies, or at least those that investors expect to grow rapidly and ultimately turn a profit. Rather than the number of deals, the total capital raised by an exchange or region minus SPAC IPOs generally gives a more accurate indication of the relative strength of the IPO market and companies publicly traded.
Somewhat unsettled, Europe has beaten US exchanges in capital raised by IPOs this year. European exchanges have not outperformed his IPO on US exchanges since the fourth quarter of 2018.
This remarkable achievement was achieved on the wheels of the continent’s largest IPO since 2011. Porsche’s giant IPO raised his $9.2 billion. This proves that stable marquee companies in established industries can still attract strong investor interest. Newly expanded equity links between China and German, Swiss and British exchanges will also help make Europe more attractive to mainland Chinese companies, thereby boosting his IPO performance in Europe. It’s helpful.
The Chinese IPO market has outperformed US exchanges in four of the last five years, including 2022 so far.
Chinese exchanges to challenge global recession
Exchanges in mainland China and Hong Kong have closed this year at a slower pace than last year, but the number of IPOs and the total amount of capital raised has increased each quarter.
This performance is in stark contrast to what happened in the US this year. In the U.S., exchanges plummeted and then capital raised at low levels virtually leveled off.
US IPOs raised $14.2 billion, down from 95 in Q1, down to 45 in Q2, raising nearly $4.4 billion. In the third quarter, U.S. IPOs rose to 52, but the capital raising index fell further to $3.3 billion, drawing nearly $1 billion less than in the second quarter.
This year’s quarterly growth is an example of how the Chinese IPO market has shown considerable strength in recent years, tapping into a formidable pipeline of non-cyclical companies for industry (including electronics), tech and consumer is.
It also appears that more Chinese companies are opting to list in Hong Kong as their primary listing exchange and the US as a secondary listing. Complete delisting in the US. Or listed on the Chinese A-share market. The A-share market was the world’s largest IPO market in the first half of the year, accounting for 39% of global IPO funding.
There are many factors that can affect the trends on this list.
- The Chinese government’s subtle tightening of Hong Kong’s listing rules related to overseas exchange listings.
- Expected relaxation of IPO rules in China.
- Geopolitical tensions with the United States.
- Partial relaxation of pandemic restrictions in China and Hong Kong.
- Chinese companies are rushing to go public because of the timing.When
- The controversy over Chinese companies providing U.S. officials full access to audit work papers has never truly been resolved.
Also, the trend to go public is not likely to abate any time soon. Goldman Sachs predicts that Chinese companies will continue to choose Hong Kong over the US for listing purposes.
In addition, five Chinese state-owned companies under investigation by the SEC for failing to make audit working papers available to U.S. authorities under the Foreign Holding Company Accountability Act have voluntarily listed on the New York Stock Exchange. It says it will be discontinued.
The IPO winter thaw should not be expected in the US for the foreseeable future, and Chinese companies are likely to keep Chinese exchanges active by increasingly refraining from listings.
Bloomberg Law subscribers can find relevant content at our Focus: Special Purpose Acquisition Companies (SPACs) page, our stock trading analysis page, and our Securities Business Center resource.
If you’re reading this on the Bloomberg Terminal, BLAW OUT