2021 was a record year for initial public offerings (IPOs), with 516 companies going public through traditional IPOs, direct listings, and completed SPAC mergers. 2022 has seen a completely different story, with only 143companies going public so far this year. In August, the U.S. government released a report that confirmed economic performance decreased for two quarters straight – which can be viewed as a long held informal indicator of a recession. It is generally known that decreases in IPOs and recessions can become correlated, but what happens to companies seeking public offerings?
What Happens to IPOs in Recessions?
The simplest answer: companies seeking to IPO may choose to delay their IPO when faced with a recession. As of June 10, there were 320 companies on file with the Securities and Exchange Commission (SEC) for an IPO and Barron’s reported that just 47 companies had used a traditional IPO to list their shares as of June 17. While there has been a definitive slowdown of IPOs so far this year, some companies are still choosing to list their offerings, like Bausch + Lomb. But for some of the companies on file with the SEC, they could be waiting for better economic times, weathering what they believe is a recession.
The trend of waiting for recessionary times to pass before finalizing an Initial Public Offering has been seen before. Per the Warrington College of Business at the University of Florida, in 2008 during the Great Recession, only 21 companies went public through a traditional IPO–an intense slowdown from 155 IPOs in each of the two prior years. However, that number doubled in 2009, reaching 42, more than doubled again in 2010, reaching 97, and surpassed the 2006 and 2007 numbers in 2013, reaching 161 IPOs. The data could support the idea that companies waited until the uncertainty of the Great Recession had settled before continuing to pursue an IPO, which may be happening again now in 2022.
2022 has seen an immense drop in IPOs and their deal values, completely different than the IPO landscape seen in 2021. With many companies on file with the SEC to conduct IPOs, it makes sense many could be waiting for inflation to decrease, economic performance to increase, and public stock market investors to regain confidence before they pursue an IPO.
The Vice Chairman and Chief Commercial Officer of the New York Stock Exchange (NYSE) stated at the World Economic Forum (WEF) in Davos that there are three factors causing the current trend in Initial Public Offerings. First, the macroeconomic environment is affecting IPO trends. Frequent interest rate increases to try and stall inflation are a large contributor to this factor. Second, the geopolitical environment is impacting market volatility, pushing companies to wait for the volatility to decrease. Finally, investor sentiment is impacting IPO timelines. There has been hesitation to invest in the public markets, and a transition towards value stocks from growth stocks. Many companies are choosing to pull back, observe, and wait before continuing to pursue an Initial Public Offering, including Justworks and Fresh Market, who withdrew their filings, and Chime, which publicly announced delaying their IPO in February 2022.
While we cannot define a timeline as to when Initial Public Offerings will pick back up, as there are many uncertainties that cannot be predicted, historical data could lead us to believe that IPOs may pick back up once concerns of a recession and market volatility have stabilized.
If you’re new to terms like “SPAC” and “IPO,” check out a few of our previous blog posts covering different ways to go public:
- What’s the Difference Between an IPO and a Direct Listing?
- SPAC Explained: What is a Special Purpose Acquisition Company?
 MicroVenture Marketplace Inc. using data retrieved 6/15/22 from https://site.warrington.ufl.edu/ritter/files/IPO-Statistics.pdf & https://spactrack.io/despacs/.
 MicroVenture Marketplace Inc. using data retrieved 9/19/22 from https://site.warrington.ufl.edu/ritter/files/IPO-Statistics.pdf
The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.