Will 2024 be the year the IPO market rebounds following a year of challenge and change?

2023 was a challenging year for the Initial Public Offering (IPO) market, with London stock market IPO proceeds falling by a significant 40%. This decline, as reported by EY, marks a significant shift in the financial landscape, with the number of issuers listing also falling by 49%.

The downturn was not limited to London, with global IPO volumes falling by 8% and proceeds down by 33% compared to 2022. Despite this, certain sectors such as technology continued to lead in terms of proceeds, raising US$32.2b. However, even this sector saw declines, driven by a subdued investor reception to high-profile tech IPOs in the US and generative artificial intelligence (GenAI) start-ups still being in the venture capital stage.

“The stability of equity markets hinges on consistent conditions so whilst falling inflation and interest rate reductions may ease in the first half of 2024, the upcoming UK and US elections in the latter half might delay significant IPO activities until 2025,” says Scott McCubbin, EY UKI IPO Leader.

IPO Activity in the UK

In 2023, IPO activity on the London stock markets experienced a sharp decline, with both the number of listings and proceeds decreasing significantly. The number of issuers listing in 2023 dropped by 49% compared to the previous year, reaching the lowest level since 2010.

Only 23 issuers went public, raising a total of £953.7 million, representing a 40% decrease in proceeds compared to 2022. The largest IPO of the year was CAB Payments, which raised £291.5 million in July 2023. The challenging macroeconomic conditions, including rising inflation, interest rate hikes, and geopolitical tensions, contributed to the subdued IPO activity in the UK.

Global IPO Trends

Globally, IPO activity also experienced a cooling effect in 2023. The total number of IPOs decreased by 8% compared to the previous year, while proceeds were down by 33%. A total of 1,298 IPOs raised $123.2 billion. T

he technology sector, despite having the highest proceeds, witnessed declines due to subdued investor reception to high-profile tech IPOs in the US and the fact that many generative artificial intelligence (GenAI) startups were still in the venture capital stage. The industrials sector had the most deals in 2023, with 265 IPOs, while the consumer sector was the only sector to see an increase in both IPO volume and proceeds year-on-year.

Regional Analysis

Americas

In the Americas, IPO activity bucked the global trend, with the number of IPOs increasing by 15% compared to 2022. A total of 153 deals were recorded, with several high-profile IPOs driving a three-fold increase in proceeds, reaching $22.7 billion.

Asia-Pacific

In the Asia-Pacific region, IPO activity experienced a decline in both volume and value. The total number of IPOs fell by 18%, with 732 companies going public, raising $69.4 billion. Mainland China and Hong Kong were particularly impacted, with both countries witnessing a decrease in IPO volume and value.

EMEIA

The EMEIA (Europe, Middle East, India, and Africa) IPO market saw a contrasting trend, with IPO volume increasing by 7% while proceeds decreased by 39%. A total of 413 deals raised $31.1 billion. Despite the challenging market conditions, smaller IPOs emerged with improved after-market performance.

Outlook for 2024

The IPO market in 2024 is expected to continue facing challenges due to macroeconomic factors. However, there are reasons to be optimistic about a potential rebound in IPO activity. The fundamentals of London as an attractive global listing destination remain strong, and pent-up demand suggests a potential upturn in the market in the second half of the year as economic challenges ease.

The proposed revisions by the FCA to simplify the UK listing regime, particularly focusing on disclosure to empower investor decision-making, are expected to provide a boost to the IPO market. However, it is crucial to strike a balance between reducing red tape and safeguarding investor protections.

Time to prepare

Sustained macroeconomic headwinds, including rising inflation and interest rates, geopolitical tensions, and investor reception to high-profile tech IPOs, contributed to the subdued IPO landscape. However, there is optimism that the IPO market will rebound in the second half of 2024, driven by pent-up demand and potential improvements in economic conditions.

The London stock market, with its strong fundamentals, remains an attractive global listing destination. As the IPO landscape evolves, it is essential for companies to focus on building fundamentals and managing price expectations to be “IPO ready” when the window of opportunity opens in 2024.