Sellers and buyers in the Initial Public Offering (IPO) market must adapt to shifting market conditions while staying vigilant. They will need to balance their strategies between caution and the pursuit of growth opportunities amid market volatility and uncertainty.
The global Initial Public Offering market experienced a mild slowdown in the third-quarter (Q3) of 2024 with global market participants adopting a cautious approach in the face of escalating uncertainties, according to EY Global IPO Trends Q3 2024.
Currently, the markets and businesses have been preparing for what’s to come, anticipating the next chapter in the evolving economic, political and geopolitical landscape – and positioning themselves for when the right opportunity presents itself for IPO.
While a gradual broadening of IPO sectors opens doors to more diverse investor opportunities, the report noted that cross-border listings are expected to sustain their momentum, as market participants recalibrate their strategies in pursuit of optimal locations and returns, facilitated by more accommodating listing regulations.
As the year-end fast approaches, seven things have been identified as what IPO candidates looking to go public will need to be well prepared for.
First, IPO candidates will need to demonstrate resilience with innovative business models, agility in navigating supply chain constraints, macroeconomic challenges, strong working capital management and adapting to new ways of doing business post-pandemic.
Secondly, as global monetary policies reverse course, companies considering public offerings must adopt more agile financial strategies and robust risk management practices to navigate the shifting economic landscape. Also, companies going public should conduct extensive pre-IPO funding and marketing, complete with cornerstone investors, to mitigate uncertainty and improve pricing leverage.
Also, IPO candidates are also expected to consider the impact of geopolitical risks, wars and regional conflicts, macroeconomic factors (inflation and interest rates) and a changing regulatory environment (stock exchange reforms, securities regulations and ESG requirements).
Likewise, companies are also expected to be able to clearly articulate an embedded ESG strategy and culture, from climate change mitigation initiatives to promoting board and management diversity.
“Nevertheless, optimism remains high. The global IPO market is poised to show tenacity through the remainder of 2024, buoyed by softening global interest rates and the alleviation of inflationary pressures. These changes are creating favourable conditions for new listings. Healthy IPO returns, which have consistently met or outperformed benchmark indices, add to the positive outlook. Strong capital markets in key regions, such as the US, Europe and India, are further bolstering positive sentiment,” the EY report further noted.
Read also: Market thirsts for IPOs despite record listings
Inflation and interest rates, geopolitics and global elections, economic outlook, government policies and regulations, environmental, social and governance (ESG) agenda, and global supply chains are key factors identified to be considered for IPO candidates.
Furthermore, companies considering going public should also weigh all options, from an alternative IPO process (direct listing or dual and secondary listings) to other financing methods (private capital, debt or trade sale).
IPO candidates are also expected to closely monitor election outcomes, attentively assess the potential impacts on equity stories and stakeholder interests, and, if necessary, reevaluate their IPO strategies and timings.
Despite turbulent waters, the global IPO market maintains an optimistic outlook for the remainder of 2024. Looking at the regional IPO facts and figures, it shows companies in America region did 146 IPO worth $27.3 billion in nine months as against 118 IPO worth $19.9billion that were done in the same period of 2023.
In Asia-Pacific region, the number and value of IPO dropped year-on-year (YoY) to 330 and $20billion as against 575 IPOs worth $60billion recorded in corresponding period of 2023. In the EMEIA region, 394 IPOs worth $30.3billion were recorded compared 290 IPO worth $20.9billion recorded in same period in year 2023.
“Today’s selective IPO market continues to favour well-established, profitable companies. Those not yet operating at scale are facing hurdles in attracting investor
interest. IPO aspirants must prioritise operating leverage and profitable growth to approach the IPO process with confidence,” said Rachel Gerring, EY Americas IPO leader.
In the traditionally quieter third quarter of 2024, global IPO activity demonstrated remarkable resilience in equity offerings, launching 11percent more IPOs than the previous quarter, despite a YOY decline. This resilience emerged against a backdrop of heightened uncertainty, driven by weaker economic data, increased market volatility, the impending US presidential election and ongoing geopolitical tensions.
The Asia-Pacific region, which experienced an IPO slump in the first half of the year, showed signs of stabilisation in Q3. Renewed activity in mainland China and Hong Kong played a pivotal role in halting the decline, thereby steadying global IPO activity. Year-to-date (YtD) in 2024, the Americas and EMEIA regions have exhibited impressive double-digit growth compared with the same period last year, despite a slowdown in global public offerings partially due to the earlier pause in Asia-Pacific IPO activity.
IPO returns YtD have consistently met or exceeded benchmark index returns across most major IPO markets, reflecting robust investor confidence amid heightened market uncertainty. PE and VC’s influence on the IPO market has grown, with PE- or VC-backed IPOs comprising six of the top 10 global IPOs and representing about onethird of all global IPO proceeds. In the Americas, these IPOs accounted for 52 percent of the total proceeds, underscoring a greater willingness among PE or VC firms to exit in the current IPO landscape.
“As inflationary pressures diminish and the need to bolster economic growth becomes a priority, a global interest rate easing cycle has commenced, with advanced economies at the forefront. Lower interest rates and the easing of inflationary pressures could offer some relief to companies looking to go public by reducing the cost of capital and encouraging investment in new ventures.
“With increased clarity around interest rate policies, their direct influence on the IPO market trajectory may start to fade, allowing other factors to play more pivotal roles in shaping the IPO landscape.
“Economic headwinds and geopolitical risks might temper enthusiasm for public offerings in certain sectors and across continents, while policies from the election super cycle could add layers of complexity to the IPO decision-making process,” the report shows.
“Investors are gearing up for a more volatile second half of 2024. As inflation and interest rates recede, other emerging factors are taking precedence in influencing IPO decisions. In this environment of heightened uncertainty, well-timed market entries and compelling equity narratives are crucial for businesses looking to capitalise on IPO opportunities,” said George Chan EY Global IPO leader said in the report.
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