Stock market volatility slows IPO momentum for 2022

We’re seeing a slowdown for initial public offerings at the beginning of 2022, indicating that a difficult year may lie ahead for the market. 

Due to fears over market volatility, many IPOs are beginning to get shelved by businesses unwilling to risk an underwhelming debut. 

The prospect of interest rate hikes along with slower economic growth and geopolitical concerns have impacted global equities heavily - putting them on a collision course with the worst month since the beginning of the pandemic. Most notably, tech and growth stocks have been heavily impacted by the downturn, with investors selling off in order to buy into cheaper stocks. 

“It’s a really tough environment for new listings right now. Many investors are grappling with their portfolios turning negative and the rotation into value is depressing appetite for the growth stocks that dominated the IPO market last year,” said Andreas Bernstorff, head of European equity capital markets at BNP Paribas SA.

(Image: Financial Times)

As Financial Times data shows, the troubled start to the year across the IPO market has been sending plenty of warning signs across 2021. With the decline of opening day ‘pops’, investors have increasingly stepped away from buying initial public offerings to pursue investments elsewhere. 

“In 2022, we expect a gradual recovery from a challenging 2021,” explained Maxim Manturov, head of investment advice at Freedom Finance Europe. 

“High fundamental undervaluation, a general return to the mean within multiples and the achievement of long-term technical levels all combine to set the landscape for a recovery in a large proportion of oversold securities. According to a number of market participants, the rotation between growth and value sectors will be less pronounced in 2022, especially if inflation peaks in the first half of the year.”

Companies Resort to Shelving IPOs

Worryingly, the downturn in IPO performance and concerns over the state of the stock market has caused many companies to shelve their plans to debut. 

Dutch file-sharing company, WeTransfer, recently confirmed its intention to cancel plans for an IPO on the Euronext Amsterdam exchange, highlighting market volatility as a leading point of concern. However, the firm also stated that there was still a sufficient level of investor demand in place for the IPO. 

“While we have decided not to proceed with our public listing due to volatile market conditions, our commitment to address the needs of our global community of 87 million monthly active users remains as strong as ever,” said Gordon Willoughby, CEO of WeTransfer.

We’ve also seen Spanish bank Ibercaja postpone its IPO due to market volatility on an international scale. 

According to the bank, its board "agreed to wait until the markets return to a situation of normality before continuing with its IPO.” Originally, Ibercaja was aiming for a mid-February floatation, but the company’s fears over the state of the market are shares with other firms around the world, and may see more companies waiting longer before listing. 

Whether this flurry of January listings will lead to a chain reaction of startups pulling their IPOs over the course of the year remains to be seen. Cooling interest in initial public offerings will come as a blow to markets around the world - particularly as companies like Stripe, Instacart and Discord among many other big names had all indicated that a 2022 floatation is likely to take place. 

Preparing for a Softer Market

Despite cooling interest in launching an IPO in 2022, there is a pool of hundreds of companies that are now ready for public life. However, private markets are becoming an increasingly prosperous place for late-stage companies. Over the first three-quarters of 2021, fundraising mega-rounds of over $100 million accounted for over half of the total venture capital investments taking place at the time, according to the Q3 PitchBook-NVCA Monitor. VC firms also raised a record-breaking $96 billion over the same period. 

With plenty of capital flowing from VC investors, companies may feel less inclined to go public, and could find it far easier to extend their IPO timelines with little financial friction involved. 

Ali Mitchell, partner at EQT Ventures, believes that 2022 will struggle to match up to the performance of 2021. "I think you're going to see a gradual softening of the market. There's an enormous store of companies, but 2021 has been a peak,” Mitchell noted. 

Of course, it’s also important to acknowledge the influence of inflation throughout the IPO market also. The interest rate increases that have followed record-breaking rises in inflation have put considerable pressure on stock prices. The impact of these factors will vary depending on the severity of inflation and the collective responses issued by the banks. 

Fortunately, the stock market responded well to the Federal Reserve’s December announcement regarding upcoming rate hikes for 2022 - which indicates that the move was well anticipated on Wall Street. 

Although we may not be in for another bumper year for IPOs, the quality of listings on the way may yet inspire more companies to put their debuts back on track. The early initial public offerings for 2022 may be key for shaping the outlook for the year ahead.