The 2023 IPO market was notable, not simply as another down year, but also for its tentative improvements followed by a slower stream of initial offerings. The new year brings both a deep pipeline of potential IPOs and a long list of factors that could make walking the path to becoming a public company tougher, including a presidential election, Congressional budget fights, wars in Ukraine and Gaza, relations with China, and the overhang of $46 billion of investor losses arising from the SPAC boom.
2023 IPO Market Was Much Like 2022
The IPO market’s 2023 performance was much like 2022, as the charts below illustrate. Last year’s deal count of 171 offerings fell over 21% from 2022’s low count of 218.
There was modest improvement year-over-year in capital raised, increasing in 2023 by over 8% compared to 2022 levels to $26.2 billion, although the capital raised in 2023 represents less than 8% of the nearly $339 billion raised in 2021, a record year.
The three largest IPOs in 2023 belong to semiconductor manufacturer Arm Holdings, consumer health company Kenvue, and the maker of the world’s ugliest footwear, Birkenstock. Even though those IPOs raised large amounts, their challenging post-IPO share performance raised concerns among market watchers about the market’s strength.
Birkenstock closed 13% below its offer price on its opening day, Arm’s stock fell 8% after it forecast a smartphone sales slump, and Kenvue shares dropped 9% from its post-Johnson-and-Johnson spinoff high.
IPO Market Outlook for 2024
IPOs are coming off their worst year globally since 2012, and the US market has been in a deep freeze for the past two years. However, the new year is already giving reason for cautious optimism about the market’s direction.
Two recently filed IPOs, BrightSpring Health and Amer Sports, are expected to raise at least $1 billion each and other companies, notably Reddit, Shein, and General Atlantic, are reportedly preparing large initial public offerings for this year. The pipeline of new offerings looks deep— provided conditions prove favorable enough so companies don’t delay their offerings. IPOs were delayed in 2023 not only in the US by companies such as Reddit, but also by Syngenta in China.
The number of unicorn offerings ($1 billion or larger) tallied in a year, in conjunction with other factors such as overall IPO count, deal value, the number of up-sized offerings, and pricing above the expected range, can offer a measure of market health.
The chart above begins in 2009, when there were only two unicorn IPOs as the US was pulling itself out of the Great Recession. Healthier years of 10 to 12 unicorn IPOs followed in 2013–2014 and 2018–2019, followed by the pandemic boom of 2020–2021 which saw 28 unicorns go public in 2020, and a whopping 38 in 2021. There were only three unicorn IPOs in 2023, but the market is well-primed to match or beat that total in the first quarter alone.
Looking forward, IPOs will need lower interest rates to substantially increase the number of deals. Initial public offerings are typically growth stocks that are hurt by high interest rates environments such as today’s, as those high rates weigh on a company’s balance sheet, making them less attractive compared to other investments.
The market continues to look to the Federal Reserve for improvement on that front, with market watchers disagreeing on how quickly rates are likely to come down. Although the 12-month inflation rate through December 2023 moderated to 3.8%, getting down to the Fed’s stated 2% inflation target may require rates to stay higher for longer than those looking to participate in the IPO market would like.
Absent an unanticipated major event, the Fed’s actions are likely to dominate the IPO market this year. That said, the uncertainty of November’s presidential election may push some companies to take the IPO plunge despite the risks.
Bloomberg Law subscribers can find related content on our In Focus: Special Purpose Acquisition Companies (SPACs) page, our Equity Deal Analytics page, and on our Securities Practice Center resource.
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