EconomicsRising interest rates and stock market volatility causes the IPO market to...

Rising interest rates and stock market volatility causes the IPO market to fall by 70% – however, optimism remains

$65 billion has been raised through IPOs in 2022, compared to $219 billion in the same time period in 2021 

Chris Biggs, Partner at consultancy and accounting disruptor, Theta Global Advisors, discusses the external factors affecting the IPO market

Initial public offerings have fallen 70% in the first three months of 2022 compared with the first three months of last year. Despite rising interest rates, mixed with volatile stock markets, worldwide public offerings have still raised $65 billion in 2022. Chris Biggs, Partner at Theta Global Advisors, states that whilst the IPO market does not sit in a perfect position, opportunities still exist for companies who are in a prime position to take advantage of them.

Businesses have endured challenging times recently, with volatile stock markets, caused by external world events, meaning investor appetite has decreased for IPOs, but Chris Biggs states that by utilising astute advisors, as well as producing an experienced business plan, businesses have an opportunity to maximise their initial public offerings throughout 2022. A number of high-profile listings including Thyssenkrupp AG’s Nucera and Industrie De Nora SpA in Europe, combined with Savage X Fenty lingerie and SoftBank Group Corp backed chipmaker Arm Ltd in the U.S. are scheduled for listings in the second quarter, with these significant offerings due to bounce-back the IPO market and provide encouraging opportunities for investors. Interest rates have rose for the third time in four months in the UK as the Bank of England tries to soften the impact of the rise in the cost of living. With the rise (from 0.5% to 0.75%) representing the highest interest rates level since March 2020. The Bank of England cited the increase as a result of the cost of living and strong employment as the predominant reasons for the latest rate rise.

The rise has affected the IPO market greatly – last year there were 1035 IPOs worldwide, which represented a new record, with global IPO proceeds gaining a record $608bn as global IPO activity surged and valuations were pushed higher by strong investor appetite for equity. However, the rising interest rates have severely dented that appetite, having a significant impact on the amount of IPOs this year and significantly hinder companies’ IPO plans. For a lot of the biggest names, an IPO remains the main objective, with some major companies, including Reddit and TPG planning their public debuts for several years now, but it’s hard to predict if they will proceed with their listings if worldwide markets continue to fade.

Companies are finding it harder than ever to retain top talent, adding to the full move back to the office being delayed further by the omicron variant, companies are facing a myriad of obstacles to overcome before considering an IPO.

Chris Biggs, Partner at Theta Global Advisors – discusses the external factors affecting the IPO market:

“The rising interest rates have caused a significant shift in the IPO market. Moves must be made to counter growing inflation and the recent interest rates rise is a significant step to counter inflation rises. Global inflationary pressures will grow considerably over the next few months, whilst growth in economies that are energy importers is likely to slow. Companies must consider the rising interest rates in great detail before considering an IPO.”

“With major companies continuing with their public offering plans throughout the next quarter, the market looks set to rebound and provide several exciting opportunities for investors throughout the rest of 2022. By having astute advisors in place, companies have the opportunity to undergo a successful IPO, however, companies must be fully prepared before considering a public offering and they must have an astute plan in place.”

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