Daily Management Review

The Technology IPO Market Is Having Its Worst Year Since The Global Financial Crisis


The Technology IPO Market Is Having Its Worst Year Since The Global Financial Crisis
Initial public offerings by US technology firms have fallen to their lowest levels since the 2008 global financial crisis, as stock market volatility, soaring inflation, and interest rate hikes have soured investor sentiment toward new listings.
According to Refinitiv data, only 14 technology companies have had their shares listed on stock exchanges this year, compared to 12 in 2009. This year's IPOs raised $507 million, the lowest amount raised through flotations since 2000. Total IPO volumes fell 90.4 per cent year on year in the first nine months of this year.
According to analysts contacted by Reuters, a sharp drop in stock market valuations has discouraged tech firms from pursuing stock market launches.
The S&P Information Technology index's forward P/E (price-to-earnings) ratio was trading at 20.18, the lowest level since April 2020.
"Institutional investors have been shifting capital allocations while retail investors have been licking their wounds," said James Gellert, chief executive officer at Rapid Ratings.
"This is a terrible backdrop for IPOs, in particular tech IPOs, which rely on bull markets and momentum investors to bolster their market entries."
The Renaissance IPO index, which tracks the largest and most liquid US IPOs, has fallen 50.4 per cent this year, compared to a 23% drop in the S&P 500 index.
On Wednesday, shares of Corebridge Financial Inc, which launched the largest IPO in the United States this year, were trading about 4% below their offer price of $21.
The poor after-market performance of 2021 IPOs, according to Rachel Gerring, Americas IPO leader at Ernst & Young, has dampened investor appetite for new stocks.
"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," said Gerring.
Chobani, the Greek yogurt maker, canceled its plans for a U.S. IPO earlier this month, and several other big names, including Reddit and ServiceTitan, have postponed their plans to go public this year. more info
Financials and healthcare were among the most active IPO sectors in the United States, followed by energy and power.
Energy markets remain active, according to Jennifer Post, partner at Thompson Coburn, due to disruptions in global supply and distribution channels, while electric vehicle adoption is also driving deals.
"These areas should see IPO candidates in 2023 as the urgency for capital investment will be more pressing and growing commercial and consumer demand should remain strong," said Post.