Global IPO Watch 2023 and outlook for 2024

Headlines: fortune will favour the ready

Cautious optimism for an IPO recovery in 2024 as macro landscape stabilises, but windows will be tight

• Increasing economic confidence as the macroeconomic landscape stabilises, growth in equity indices and a backlog of demand for exits all point to potential re-opening of Western IPO markets in 2024. In contrast, China shows signs of greater uncertainty going forward.
• This renewed optimism is tempered by geopolitical uncertainties and with elections in 2024 for a significant proportion of the world’s population, IPO windows will rapidly open and close.
• Investors will continue to challenge issuers on equity story, profitability, cash generation and, ultimately, valuations.
• Fortune will favour the ready: As always, being prepared to take advantage of these tight windows will be key for prospective issuers. There will be value in planning for optionality
  (e.g. dual track) and we expect alternative funding mechanisms (hybrid and convertible instruments) to continue to gain traction during 2024.

2023 was a quiet year for global IPOs, with bright spots in the Middle East, India and Indonesia

• The S&P 500 ended the year up 24% (driven by large tech stocks), European indices were broadly up, but to a lesser extent, and China was down 4%. However, IPO volumes were very subdued in the US and Europe with no European market in the Top 10 globally. Asia was the only region with proceeds broadly consistent with 2019, with other regions below this level, China being the most active.
• India was third globally in respect of IPO proceeds raised in 2023 reflecting a shift in the sources of capital and maturing local markets. The NSE has surpassed Hong Kong in terms of market capitalisation in November reaching nearly $4tn driven by strong economic growth and benefiting from geopolitical shifts such as “China plus one” supply chain de-risking.
• The Middle East and Indonesia have also seen strong IPO issuance in 2023.

Technology sector continues to lead in terms of IPO proceeds

• The Computer & Electronics was the largest sector in terms of IPO proceeds in 2023, raising $34.4bn, followed by the Healthcare ($10.7bn) and Finance ($9.6bn) sectors.
• Since 2021, technology has been consistently the largest sector in terms of IPO proceeds and brought the largest IPO for 2023.

The aftermarket performance of IPOs in 2023 has been improving in the US and EMEA, relative to 2022 IPO vintage

• Improving aftermarket performance of 2023 IPOs over $100m in the US and EMEA, as compared to 2022 IPO vintage, adds to the optimism around investor appetite towards IPOs.
• In EMEA, most of the top ten IPOs ended the year in positive territory, primarily reflecting strong post-IPO performance in the Middle East .
• Of the five largest IPOs in China in 2023, four have ended the year more than 10% below their respective IPO prices and only one ended the year above its IPO price.

Robust follow-on equity issuance in 2023 demonstrates functioning equity markets supported by investor appetite

• Globally, $381bn of follow-on equity proceeds were raised in 2023. This is higher than the $338bn raised in 2022, but lower than the average between FY19 and FY22 of $588bn.
• The US was the most active market for the follow-on issuance globally in 2023, whilst London remained the most active exchange in Europe.
• An active follow-on market demonstrates that there is continued investor appetite for equity in quality businesses, which is a good precursor to a recovery of the IPO market.

2023 in review: recovery in equity markets

Equity markets update

Overall equity market performance in 2023, as measured by the MSCI World index, has been positive, with the index up over 22%. However, performance by region varied.

The S&P 500 ended the year 24% higher in 2023, following its worst year in 2022 since the financial crisis. The positive return in the US market is primarily driven by a small subset of tech stocks, particularly those with exposure to artificial intelligence.

The FTSE 100 and the Stoxx Europe 600 have also ended the year in positive territory, gaining 4% and 12% in 2023 respectively.

The Shanghai Stock Exchange Composite, however, did not have the same positive performance in the year, falling 4% in 2023 on the back of lower growth forecasts for the Chinese economy as well as concerns over deflation.

Significant financial outflows from the Chinese market have occurred in the second half of the year after a record pace of global investment in Chinese stocks in early 2023 in anticipation of an economic rebound after the easing of Covid lockdowns.

Macroeconomic overview

2023 saw the increase in interest rates across major economies to tame inflation at highs not seen for many years. The bond markets in Q4 have shown that investors predict that interest rates are likely to have peaked and rate cuts are priced in for 2024, despite the “higher for longer” signals from the US, European and UK central banks.

Investors’ worries about macroeconomic volatility and inflation have declined with the VIX Index relatively low and steady throughout most of the year.

The normal correlation between the VIX Index and the IPO market (i.e. when VIX is low and stable, IPO volume is expected to increase) has, however, not been present with a "risk off" attitude of investors towards IPOs, thereby leading to subdued levels of activity.

_{Source: S&P Global Market Intelligence LLC, as of 31 December 2023.}

2023 in review: equity issuance update

Equity issuance update

Follow-on equity issuance in FY23 ($381bn) surpassed FY22 ($338bn). However, IPO activity in FY23 ($121bn) is lower year-on-year (FY22: $173bn).

The strong global equity market performance (excluding China) and reduced volatility, driven by positive macroeconomic indicators, has allowed established companies to raise significant amounts on the secondary market in 2023.

The US continues to lead globally with FOs raising $34.5bn in Q4 and $130.1bn in FY23, followed by China ($56.3bn) and Japan ($27.9bn).

The largest sectors for FOs in FY23 were Finance ($58.5bn), Computer & Electronics ($54.9bn) and Healthcare ($53.1bn). Refer to page 9 for further analysis on FOs.

The largest market for IPOs in 2023 was China, raising $45.3bn, including 3 of the top 10 IPOs, followed by the US ($24bn) and India ($6.6bn) in second and third place respectively.

The largest sectors for IPO activity in terms of proceeds raised was Computer & Electronics ($34.4bn), followed by Healthcare ($10.7bn) and Finance ($9.6bn).

The criteria for success in the IPO market in 2023 has been:

• thoughtful marketing, with some of the largest IPOs attracting significant cornerstone investors to provide momentum;
• a solid equity story based on a strong financial track record with a history of profitability; and
• valuation. Since 2021 bull market for IPOs, investors are now more focused on valuation and aftermarket performance, looking for post-IPO upside in order to invest.

IPOs: 2023 regional highlights

• Asia-Pacific IPO proceeds in the region remained at the highest for the second consecutive year, with 737 IPOs raising $73.1bn and accounting for over half of the global IPO proceeds. However, overall IPO proceeds in this region have declined by more than 30% each year since its peak in 2021.
• After significant decline of more than 90% in 2022, IPO proceeds in the America region remained broadly consistent with 2022, raising $25.8bn via 154 IPOs.
• Whilst EMEA region accounted for 20% of the global IPO proceeds in 2023, almost half of the money raised was in the Middle East, followed by Turkey and Germany contributing 14% and 10%, respectively.

In contrast to five years ago, there has been a significant change in constituents of the top 10 countries in terms of their contribution to global IPO proceeds.

• Mainland China, which gained its top rank in 2022 by surpassing the US, maintained its top rank in 2023.
• IPO activity in the UK, Germany and France remained subdued in 2023.
• New IPO “brights spots” continue to emerge and gain momentum, including in the Middle East, Indonesia and India.