Insight

IPO Insights Q4 2022

The Q4’22 IPO Insights report delivers the latest information and analysis on IPO activity and performance.

Conor Moore
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Conor Moore

Partner, National Leader, KPMG Private Enterprise, KPMG US

+1 415-335-8401


The year that was: From feast to famine

After a Year of Feast, a Year of Famine. And so it was. In 2022, just 71 IPOs closed. Only $7.7 billion was raised. Average deal size sank to $20 million. Compared to the gorging of 2021 – 397 deals, $142.4 billion raised, and a median deal size of $176 million – the past year left those with an appetite for IPOs and public exits more than hungry1.

The causes of the famine are obvious – investors were cautious about the state of the global economy. Interest rates were rising rapidly. Valuations were declining. Those IPOs that did emerge lost their investors an average of 31 percent by year end1. This was not the year for a public market exit.

Unfortunately, many of the deals that were brought to the market in 2022 did more to add volatility than reduce it. Small issuers accounted for nearly three-quarters of IPOs. Of the 10 worst-performing IPOs, half saw first-day pops of more than 250 percent before ending the year down 88 percent or more from initial offering. All had deal sizes valued at less than $40 million1.

“No one will take their company public in an unstable market – there are just too many risks. When the market does stabilize, likely not til late in 2023, there are numerous companies ready to go – including some very strong ones. Let’s hope they are the ones that are first out of the next IPO window – only thing worse than no IPOs are bad IPOs.”

Conor Moore, National Leader, KPMG Private Enterprise 


US IPO Returns Activity

The winners and losers: From growth to value

The shift from growth to profitability was clear in investor sentiment over the past year. Three of the four biggest deals of the year were spinoffs with strong track records (Corebridge’s spinoff of AIG, Intel’s spinoff of Mobileye and Bausch Health’s carveout of Bausch + Lomb). The other big deal of the year was private equity firm TPG1.

Energy and healthcare stocks delivered positive overall returns in the year as investors bet that higher energy prices would deliver strong profits and a continued focus on health and wellbeing would deliver continued demand for health products and services. ProFrac Holding, a fracking services provider, launched the year’s 6th largest IPO by deal size ($288 million) and then delivered a 40 percent return from the IPO by year end. HilleVax, a biotech company with an in-licensed vaccine in development, brought the 7th largest IPO, raising $200 million and returning 33 percent by year end1.

While the tech sector brought 19 new issues to market, the group ended the year down 47 percent – it would have been much worse without the contribution of MobileEye (up 67 percent at year end), Credo Technology Group (a semiconductor business) and Loop Media (a streaming media company), both of which delivered returns of about 33 percent on the year1.

“An important question is how much of the performance of recent IPOs and SPACs is a function of the macroeconomic environment versus the caliber of the company or the mechanism through which these companies went public. There are certainly many quality companies that have been impacted by the macroeconomic situation, but I also believe investors are becoming much more selective about where they invest.”

Shari Mager, U.S. National Capital Markets Readiness Leader, KPMG LLP


US IPO Returns — Average 2022 Returns by sector


Source: Renaissance Capital. Based on offer price to 12/30/22 closing price. Excludes direct listings.

PE and VC action: From historic highs to historic lows

Perhaps after the frenzied deal-making of 2021, PE and VC investors deserved some downtime. They certainly got it. VC activity fell 92 percent, year-over-year, raising a total of $1.7 billion. PE just watched from the sidelines. It was the slowest year for VCs since 2009 and the first completely quiet year for PE in more than 20 years1.

In part, the lack of activity reflected volatile market conditions and massively discounted valuations (average VC tech offering valuations fell from 22.2x LTM Sales at IPO in 2021 to just 9.8x in 2022). It also likely reflects diminishing returns from the 2021 crop of deals – VC’s 2021 deals ended 2022 down 58 percent; PE’s 2021 class averaged a loss of 37 percent at the most recent year-end1.

“If decisions are being made strictly on a return-on-investment basis, it may be some time before valuations are high enough to entice VC and PE investors back into the market. With exits from IPOs out of the question for the time being, PE and VC investors are looking to keep their dry powder in case they need to prop up portfolio companies longer than they had expected.”

Erika Whitmore, Colorado Leader, KPMG Private Enterprise


US IPO Activity — Venture Capital

  


US IPO Activity — Private Equity

SPACs: From hype to reality

It was a difficult year for SPACs. Investors were alarmed by poor de-SPAC performance. Redemption rates went through the roof. Liquidations started to increase. In fact, in the last quarter of 2022 alone, we counted more than 100 liquidations and calculated an average redemption rate of around 85 percent. Most de-SPACs are trading below the $10 ticket price, more than one-third are trading below $22. 


No SPACs liquidated(b)
 

     


Total SPAC creator losses from liquidations (Quarterly) (US$ bn)

     


No. of SPACs looking for acquisitions, and dry powder available (US$ bn)  


Less than 12 months left to acquire 


Less than 24 months left to acquire 

391 SPACs

US$97.8 bn

71 SPACs

US$11.0 bn

Source: KPMG, US Equity Capital Market Update, Q4’22, January 2023

Part of the reason investors bailed out towards the end of the year may have been related to the new 1 percent excise tax passed as part of the Inflation Reduction Act, which would be applicable to stock redemptions made by U.S. SPACs after December 2022. The SEC’s regulatory frameworks requiring additional disclosures and expanding liabilities with respect to projections have also created headwinds for SPAC formations.

The outlook for SPACs over the next 12 months is not much rosier. Around 85 percent of SPACs currently looking for acquisition targets have less than a year to consummate a merger. That equates to around $100 billion in dry powder that either needs to be spent this year or be handed back to investors2. Interestingly, this may have a positive impact on equity markets overall if investors choose to put their returned capital into the markets. 


That being said, SPACs raised around $13.2 billion in 2022 (far more than traditional IPOs did). And there were still more SPACs formed (88) than in any other year prior to 20202.Clearly, the market still believes that SPACs will remain a key part of the public ecosystem going forward. But the peak of the hype cycle around SPACs seems to have passed. 

Future Trends

  

Breaking the drought

  • More confidence in interest rate direction, less market volatility, better earning results, receding inflation rates, continued low unemployment numbers – all of these would help create a market environment that would attract investors. 
  



   

While you are waiting…

  • If you were one of those companies that managed to secure a round of investment at high valuations before the markets went south, you are probably focused on improving your organization’s execution and cost structures. Many are now reexamining those parts of the business that grew rapidly over the past few years to find and reduce inefficiencies and underperformance.
  • Those that can’t get through the next two quarters without additional investment will need to make some tough choices. Nobody wants to complete a down-round. And recent rounds of investment have become much more restrictive and time-consuming as investors ramp up their due diligence and think carefully about future profitability. 
  



   

Outlook 2023

  • Absent a rapid end of hostilities in the Ukraine, there is little reason to hope that the global macro-economic and socio-political climate will stabilize enough to allow the IPO window to open in the first half of this year. We expect SPAC formation to continue to slow considerably. Valuations will plateau and slowly start to rebuild.
  • If all goes well, we expect to see the IPO markets start to reopen in the summer of 2023

Footnotes

1 Source: Renaissance Capital, Q4 2022

2 KPMG, US Equity Capital Market Update, Q4’22, January 2023

IPO Insights 2022
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