Initial public offerings fell sharply last year. Are things looking up?
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Initial public offerings fell sharply last year. Are things looking up?
If you haven’t heard us talk much about companies going public lately, there’s a good reason: The number of companies that IPOed in 2022 hit its lowest level in years. Just 181 companies went public, compared to more than 1,000 in 2021.
But experts say this year is looking a little brighter.
Sometimes, it can feel like the moves made on Wall Street have nothing to do with real life. But that’s not necessarily true, said Gregory Rice at Boston Consulting Group.
“Like all markets, the IPO market is tied to a level of confidence,” he said.
Confidence in the economy, that is. Remember what it looked like in the big IPO year of 2021? People were out and about after their COVID spending slumber. The stock market was booming and interest rates were low — not just for consumers, but investors too. All of this made investing less risky.
Then, In 2022, interest rates went up and the stock market went down.
“And so that confidence wanes, and the IPO window narrows or shuts for a period of time,” Rice said
That period could be coming to a close. The market had a strong January and interest rate hikes have been slowing.
“And so there is a light at the end of the tunnel, but it’s just — we don’t know how long that tunnel’s going to be, I guess,” said Kyle Stanford, an analyst at the financial data company Pitchbook.
It means investors are on the prowl again. But they’re proceeding with caution. A couple of years ago, it was less risky to invest in companies prioritizing growth at all costs.
“And now investors are definitely looking for, you know, a positive free cash flow. Some ability to maybe turn on and get profitable in the near term,” Stanford said.
That’s upped interest in industries like pharmaceuticals and software.
Now, an increase in companies intending to IPO can reflect optimism about the economy. And if companies think it’s headed in the right direction, why not start preparing?
The IPO process does take roughly 12 to 18 months, according to Amanda Wu at FTI Consulting.
“I think it’s more, ‘let’s take the time now when we’re waiting,'” she said.
But Wu added that no one can time the market — not you, not me and not companies looking to IPO.
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