As widely reported, pre-IPO companies largely opted to stay private in 2023, a second consecutive slow year for initial public offerings.
To be sure, the landscape wasn’t quite as bleak as it was in 2022, which rather startlingly followed a record year for IPOs in 2021.
However, a mere comparison of recent years’ deal volumes and values may mask, to a degree, just how different the IPO space looked in 2023.
Notably, the mix of business sectors in which IPOs occurred looked remarkably different, according to the annual U.S. IPO report from law firm Paul Hastings, which studied deals sized at more than $75 million (omitting SPACs, direct listings, real estate investment trusts, and business development companies).
In 2022, almost two-thirds of the U.S. deal volume pertaining to such IPOs was in the healthcare sector. Last year, though, that percentage was roughly halved. And while last year there were no large public offerings in the consumer/retail sector, in 2023 a quarter of the deal volume was in that sector.
Also last year, more of the IPOs that did transpire were orchestrated by profitable companies. Just more than half (52%) of issuers reported GAAP net losses, a whopping 27% decrease from 2022. There was also a significant decrease in the percentage of pre-revenue issuers, from 53% in 2022 to 29% in 2023, which was much closer to the 20% result in both 2020 and 2021.
Another shift last year saw the pricing of IPOs improve dramatically. During 2023, approximately 65% of deals ended up pricing at or above the mid-point of the range stated in the issuer’s Form S-1 registration statement. In 2022, fewer than half (47%) of IPOs were priced at the mid-point or higher.
Every deal in the technology, media, and telecom industries priced above the mid-point. Inversely, almost three-quarters (71%) of IPOs in the industrials sector were priced below the mid-point.
Finally, despite continuing SEC efforts to streamline its review process, the average time-to-market (between the issuer’s first submission to the SEC and the pricing of the IPO) lengthened considerably for a second straight year. Completing an IPO took an average of 56 days longer in 2023 than in 2022, reaching a total of 294 days.
“The continued increase in time-to-market is likely driven less by SEC process and more by uncertainty and spikes in volatility” caused by events like the Silicon Valley Bank failure, the downgrading of the United States’ credit rating, and the hostilities in Gaza, Paul Hastings wrote in its study report.
“As in 2022, potential issuers have been faced with choosing between accessing uncertain capital markets and pushing their IPO to an unknown future time,” the report added.
Meanwhile, although conditions point to a step forward for the IPO market in 2024, don’t expect it to come roaring back, according to Paul Hastings.
“With the Fed signaling it will lower interest rates in 2024 and the increasing sentiment that the U.S. economy will experience a soft landing, the New Year brings with it an increased likelihood of continued IPO growth in 2024,” the firm wrote.
However, Paul Hastings added, “It is unlikely we will see an IPO boom anytime soon,” even though many IPO-minded companies have been on the sidelines for up to two years waiting for market conditions to improve. These companies “should be taking steps now to prepare for the markets to open and to be ready to seize the opportunity,” the study authors said.