Research from Renaissance Capital found that fewer than 20 U.S. companies have debuted since the beginning of 2022, furthering evidence that the initial public offering (IPO) market is slowing down after its blockbuster year in 2021.
While last year was a record year for IPOs, this year, the market is decelerating, according to Renaissance Capital, a Connecticut-based IPO investment management firm. In 2021, low interest rates led to nearly 400 U.S. companies raising in total more than $140 billion. But in 2022, 18 companies have gone public with just $2 billion raised. January started robustly, producing the strongest opening month in 21 years. But by the second half of Q1, global stock market declines caused a considerable drop in overall activity. The number of U.S. IPO deals decreased by 72% and fell 95% in proceeds year-over-year. Additionally, the average 2021 IPO is down more than 20% from its issue price. However, this deceleration is to be expected given the high activity level in Q1 2021 said Paul Go, Ernst and Young's Global IPO Leader.
"There is a risk that IPO activity will continue to slow further, with IPO candidates choosing to postpone their transactions," Go told PR Newswire. "Companies need to be well prepared to access the market when the window opens and include a careful review of business models and preparation of alternative fund-raising plans."
Renaissance Capital suggested that this downward trajectory led to a market correction. Now, some businesses that debuted last year have bloated valuations in the current IPO market. In response, a few pre-IPO companies are even cutting their own valuations – most notably Instacart, which recently slashed its valuation by 40% to just $24 billion. Go told PR Newswire that trends such as this are to be expected as geopolitical tensions, inflation, and interest rate hikes all play a role in how IPO-bound companies will develop.