Capital Markets

IPOs Raise Only $2.2B in 1Q

While 147 U.S. companies looking to raise $14 billion await a favorable market window.
Vincent RyanMarch 29, 2023
IPOs Raise Only $2.2B in 1Q

After a year Renaissance Capital characterized as the “U.S. IPO market’s slowest year in decades,” 2023 has started off with a whimper, not a bang. 

The first quarter of 2022 was a six-year low for first-quarter IPO activity —  the current quarter beat it, but just barely. These past three months, venture capital-backed issuers have had their slowest first quarter since 2009; just nine blank-check IPOs (SPACs) raised $677 million; new blank-check filings sank to a seven-year low; and in total only 23 deals reached the finish line, raising $2.2 billion. The median deal size was a low $15 million. (See chart, U.S. IPOs Suffer Another Weak Quarter.)

“The IPO market started [2023] off on a solid foot, driven by rebounding returns in January, but ran out of steam in mid-February amid volatile trading,” said Renassaince Capital’s report on first-quarter trends. “The usual March pickup never came around, stymied by [interest] rate hikes and the failure of startup-focused Silicon Valley Bank, though a few small deals were able to slip through near quarter end.”

Eight deals raised $100 million or more (see chart, below). The largest came from solar equipment maker Nextracker — the spinoff of Singapore-based Flex raised $638 million, or 30% of all the proceeds from first-quarter transactions. On Tuesday, the stock was trading only $2 or so off its peak on March 7. 

Waiting in the Wings

Plenty of companies are sitting on the bench and ready to raise funds, according to Renaissance Capital, a provider of pre-IPO investment research and IPO-focused ETFs. The IPO pipeline — companies that have filed an S-1 — currently holds 147 companies looking to a total of $14 billion. That includes 105 companies in what Renaissance calls the “active pipeline” — companies that have filed or updated their filings within the last 90 days. Only 11 of those 105 are looking to raise $100 million or more.

“Stable, profitable businesses remain the most likely IPO candidates in the near term, a common theme among the largest names in the pipeline,” according to Renaissance, including J&J consumer health unit Kenvue and Cummins spin-off Atmus Filtration. Larger issuers that updated their registrations this quarter include Vietnam’s EV maker VinFast, car-sharing firm Turo, thrift store chain Savers Value Village, Brazilian steakhouse chain Fogo Hospitality, and piano maker Steinway. The Kenvue and VinFast deals could exceed $1 billion.

But the IPO markets will continue to favor deals below the $300 million range “until the markets stabilize and higher-value issuers are confident that they will be able to price at or above the range,” according to a report by attorneys at Paul Hastings

However, “issuers aiming to go public in the near-term … should confidentially [submit] a draft registration statement with the SEC so that they are able to seize the opportunity once market windows are available,” the attorneys advise. Alert and ready registrants have been able to “pounce on brief windows of accessibility,” according to the report. In late January and early February, the CBOE Volatility Index dipped slightly, a period in which four of the first quarter’s 10 largest IPOs priced.

Several factors currently cloud our outlook into the second quarter, and the recent volatility will likely sway some companies to push back their offering plans. — Renaissance Capital

In reviewing deal terms of 183 IPOs that priced between 2020 and 2022 having a deal size of over $75 million, Paul Hastings attorneys found that it took issuers that priced in 2022 238 days between an issuer’s first filing and its IPO pricing. That compared with an average of 124 days in 2021.

What’s Ahead

Renaissance Capital predicted in late 2022 that this year would see 75 to 100 U.S. IPOs completed but it said expectations are now “muted.” 

“Several factors currently cloud our outlook into the second quarter, and the recent volatility will likely sway some companies to push back their offering plans,” Renaissance Capital said in its report. “But with private funding potentially less readily available, companies may need to accelerate their IPO plans in order to raise capital.”

A positive sign occurred this morning when Alibaba Group, China’s e-commerce giant, announced it was splitting into six business units, “a major restructuring that promises to yield several initial public offerings,” according to Bloomberg.