Thought Leadership  •  November 03, 2023

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IPO Market Trends & Outlook 2023

It's no secret that the IPO market has been sluggish since 2021. Market volatility, geopolitical instability and increased interest rates are just a few of the forces that have tampered enthusiasm for initial public offerings. There have been a couple of high-profile IPOs lately including Birkenstock, but the percentage trading above issue has fallen, lending to less optimism for the remainder of 2023. Thankfully there is a solid pipeline of companies waiting to launch; stability in interest rates and the economy, as well as the listing companies willingness to accept valuation resets, will determine how quickly we see pipeline movement. Read on for IPO trends that includes predictions for IPO volume through the end of 2023.

IPO Market Trends

While companies have confronted major headwinds this year, there are spots of brightness in the forecast. The stock market has rebounded from prior losses, volatility and inflation are stabilizing, and interest rate increases seem to be off the table for now. While nano/micro caps continue to lead IPO activity, 2023 has seen a significant increase from 2022 in offerings in the $100M+ range. Companies have taken advantage of the brief IPO window openings, leading to an overall increase in IPO activity this year.

Within the overall market, there are a few rising trends to highlight.

ESG investing is increasingly relevant

For several years, interest in environmental, social and governance (ESG) has been increasing. While there are some naysayers who criticize the concept of ESG investing, looking at the IPO trends 2023, it's clear that the market is increasingly focused on ESG metrics.

Companies that are planning an IPO need to factor ESG goals into the roadshow. They must be prepared to demonstrate their sustainability platform with numbers, not just lofty language. ESG will be of increasing relevance within the IPO industry through year-end 2023.

Resurgence in SPACs

Special purpose acquisition companies, or SPACs, aren't a kind of IPO. Rather, they are an IPO alternative.

SPAC activity is significantly down from prior years, but we are seeing an increase in the average size of offerings. Also, some SPACs who were declared abandoned by the SEC are refiling their S-1s or taking on new investors and now looking to make their public debut. With 160 SPACs searching for a target and 160 SPACs needing to complete their announced merger, SPACs will remain a viable path to the public markets but will likely take longer than previous years due to extension approvals and the level of redemptions.

Technology sector strengthens

The technology sector dominated IPO activity led by the sub sectors biotechnology and fintech, or financial technology.

Global companies listed on U.S. exchanges

Among global IPO trends, there has been an increase in international companies seeking listing on the U.S. exchanges. Investors see this as a natural way to diversify their portfolio and enjoy gaining access to international companies through their U.S. listings.

IPO Deal Volume & Proceeds Trends 2023

The third quarter of 2023 produced 36 IPOs that raised a combined total of roughly $8 billion; this was the same amount of proceeds raised for the full year 2022. This was led by the largest tech offering in years, ARM, raising approximately $4.9 billion.

Notable IPOs in 2023

No roundup of global IPO trends would be complete without a mention of some of the more buzzworthy public offerings in 2023.

Top notable IPOs and potential IPOs of the year include:

  • Instacart: Grocery mainstay Instacart announced in late summer their plans to go public and shared their year-to-date sales volume, fueling investor excitement. However, the day after launch day saw Instacart give back almost all its IPO gains.
  • Nextracker: Speaking of ESG, this company provides technology that helps solar panels track the sun and adjust their angle for maximum ray capture. Nextracker's stock is trading well over its IPO price — good news for sustainable-minded investors!
  • Stripe: After announcing an $80 million loss last year, Stripe is on track to earn $100 million this year. While there is lots of enthusiasm for an IPO, Stripe has not yet announced plans to go public. Loyal private investors prefer to keep the company private in 2023.
  • SpaceX: Another will-they, won't-they company is Elon Musk's SpaceX. The company is rumored to be considering an IPO but has no official plans yet. Musk's SpaceX doesn't need access to public capital, which gives it a long runway to consider whether to go public in 2023 — or at all.

How to Prepare for an IPO as an Aspiring Company

Preparation is key when it comes to IPO readiness.

While there have been impressive deals as of late, there is no certainty when it comes to valuation and public sentiment. External forces such as geopolitics can foster rapid changes in the market's appetite for IPOs. Companies should monitor the environment, potentially lower their valuation expectations, and be ready to charge forward or pull back.

Meanwhile, companies can tap into the trends that excite investors, such as ESG. Having clearly defined, quantifiable ESG goals is a surefire way to give investors what they want, and perhaps the key to a successful IPO in 2023.

IPOs Outlook for Remainder of 2023

Recession fears were strong during the first half of the year but seem to have decreased. Inflation has cooled, the labor market remains healthy, and volatility is at a low point. As mentioned earlier, these positive signals have generated a flush of several high-profile IPOs but IPO performance, geopolitical issues, and a potential government shutdown has certainly curtailed expectations for the remainder of the year.

High volatility curbed investor appetite for deal making in 2022. Volatility is less this year, which is part of the reason for renewed interest in IPOs but all eyes are on performance and market conditions as we close out 2023.

As the percentage of companies trading above issue has fallen, companies looking to make their public debut are rethinking whether they should put their IPO plans on hold. Expectations for the remainder of 2023 look to be lackluster. Two or more deals need to trade well to inspire others to take the plunge and this will likely happen in the new year.

Shareholders want to buy on opening day when they believe there is something in it for them. While estimated earnings per share remain below 2022 levels, they aren't dropping. Provided that these numbers hold stable or improve, investors may increase their investment activity moving into the final quarter of 2023.

This year has been a better year for IPO activity than last year. Financial data suggests there will be continued opportunities through the end of the year for companies especially those with strong growth, positive cash flow, discounted valuations relative to peers, smaller share floats, and cornerstone investors. When it comes to preparing for an IPO, don't underestimate the importance of IPO software for getting organized, communicating value, and demonstrating priorities (including ESG) to stakeholders. DFIN's IPO software helps companies accelerate their IPO or SPAC timeline while staying organized from the roadshow through to post-IPO daily operation.