The IPO market for US tech firms for this year has been the worst since 2008’s financial crisis due to several economic factors.
Current Refinitiv data shows that the US tech IPO market is experiencing its worst year since 2000. Stock market volatility, interest rate hikes, and rising inflation are taking their toll on the IPO of US tech companies.
Reuters reported that IPOs floated by US tech companies this year pulled in the lowest figures the market has seen since the 2008 global financial crisis. According to Refinitiv, year-to-date public listings by US tech companies total 14, compared to the 12 recorded for the same period in 2009. Regardless of the increased number, US tech companies have generated their least amount since 2000, raising $507 million.
US Tech IPO Market Plunges on Poor After-Market Performance
Compared to last year, the total IPO volume dropped by almost 100% in the first three quarters of this year. Reuters analysts attribute US tech firms’ unwillingness to pursue IPOs to the sharp fall in market valuations. Ernst & Young’s Rachel Gerring said the poor after-market performance of last year’s IPOs discouraged investors from new stocks. According to Gerring:
“Tech has been impacted in an outsized way by the market-wide drop in valuations. There was significant fundraising throughout 2021 across the sector, providing tech IPO-aspirants with the necessary capital to weather this volatile time in the market.”
The Renaissance IPO index dropped by 50.4% this year, while the S&P 500 index also suffered a 23% decline. Furthermore, the forward price-to-earnings ratio of the S&P Information Technology index recorded its lowest trading level in two years, at 20.18. Insurance company Corebridge Financial Inc, the company that launched the US largest IPO, closed on Wednesday at 4% below its offer price. According to the chief executive officer at Rapid Ratings, James Gellert:
“Institutional investors have been shifting capital allocations while retail investors have been licking their wounds. This is a terrible backdrop for IPOs, in particular tech IPOs, which rely on bull markets and momentum investors to bolster their markets.”
IPOs in 2023
Earlier this month, Greek yogurt maker Chobani abandoned its US IPO, as others like ServiceTitan and Reddit soft-pedaled on theirs. However, there are few bright spots for IPOs in the US. Financials, healthcare, and energy & power are some promising sectors for IPOs in the United States.
Thompson Coburn partner Jennifer Post said energy markets remain active due to disruptions in global supply and distribution channels. Also, she said the adoption of electric vehicles is a major boost for the energy & power sector. According to Jennifer, there should be more IPOs in the sector by next year as capital investment increases. In addition, she suggests that the energy and power sector should also see more IPOs. Jennifer’s believes this would happen as “growing commercial and consumer demand” remains strong.
The IPO market in Asia is recording increased activity, unlike the American market. Bloomberg reports that Asian listings have generated $104 billion in 2022 alone, representing 68% of global listings. With the $153 billion global total, IPOs in the US only accounted for 14%, the lowest share the US has ever snapped.