Global share sales collapsed this year as the IPO market froze and hundreds of companies postponed their IPOs as Russia’s invasion of Ukraine and central bank interest rate hikes weighed on the broader economy. .
“It’s all about rates: the price of money changed and it affected everything,” said James Palmer, Bank of America’s head of equity capital markets for Europe, the Middle East and Africa.
Banks have underwritten $517 billion in share sales to date in 2022, a 66% drop compared to all of 2021 and 29% less than before the pandemic, according to Dealogic data.
With exceptions such as Porsche’s 9.4 billion-euro ($9.97 billion) offer in September, most of the major deals include Swiss dermatology specialist Galderma and SoftBank Group Corp. Chip designer Arm has been postponed until market conditions improve.
IPO advisers therefore do not expect a pick-up in new listings before the second half of 2023.
“We are entering a new world of recession that we haven’t seen in a long time,” said Valery Barrier, who co-heads Citi’s EMEA ECM franchise.
As the cost of debt continues to rise, bankers hope companies will turn to other capital solutions as a way to manage their balance sheets and protect their corporate ratings. Recent examples of these types of deals include French video game developer Ubisoft and Credit Suisse.
Banks expect a recent uptick in block trading and capital raising to carry over into the new year.
“Volatility has droppedso the markets have the ingredients for issuance to pick up,” said Alex Watkins, co-head of ECM at JPMorgan for EMEA.
Rate hikes dampen confidence
Global stocks fell last week after a series of aggressive announcements from major central banks.
Some investors are betting that interest rates will start to stabilize sooner than the authorities have indicated, as inflation shows signs of having reached its peak.
The slowdown in IPOs has left a backlog of high-growth, but unprofitable companies waiting to hit the market.
“ECM activity tends to be higher in times of difficulty or when growth is strong, and today we are in no man’s land,” said Gareth McCartney, global co-head of ECM at UBS.
The return of long investors to capital markets deals is seen as key to any recovery, after a year in which hedge funds have taken a leading role as buyers of new issues.
The structure of the transactions will also be a key factor in the success of future IPOs, particularly for private equity-backed companies that have large amounts of debt.
The world’s largest private equity firms, which were forced to postpone the launches of several dozen IPO-ready portfolio companies this year, are expected to remain cautious over the coming quarters.
“The question is whether we’re going to see private equity investors feel comfortable selling at lower valuations.” BofA’s Palmer said. “A lot of this will come down to an assessment of the investment performance profile, as well as the overall dynamics of the relevant fund.”
A bright spot for IPOs has been the Middle East, where private and state-backed companies are turning to the markets for capital and liquidity; these companies have raised more cash this year through IPOs than Europe and Africa combined.
Earlier this month, Saudi oil refiner Luberef priced its $1.3bn share offering at the top of its initial price range due to strong investor demand.
However, the rest of the world has a longer road to recovery ahead.
Source: Ambito
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