Rising inflation and interest rates have caused the value of initial public offerings (IPOs) in the US and Europe to fall by 90% this year. Despite these obstacles 157 companies have continued with their plans to go public, raising a total of $17.9 billion in the first five months of 2022 – compared to $192 billion in the same period last year. Chris Biggs, CEO and founder at Theta Global Advisors, states that as the market is proving to be unstable, companies may find it beneficial to take a break on their road to becoming public – or face a much lower valuation than they could achieve in a more favourable market.

Businesses have endured challenging times recently caused by external world events and because of this investor appetite has decreased for IPOs. Biggs states however that by utilising astute advisors, businesses have an opportunity to maximise their initial public offerings if they take the time to pause, plan, and then proceed. There are several major IPOs in preparation that could be completed by the end of the year, including GlaxoSmithKline, AIG and Volkswagen planning a €20bn partial float of Porsche this year. These significant offerings could cause the IPO market to bounce-back and provide encouraging opportunities for investors. Although, with the volatility of the market, there is also the potential for the offerings to be much less than the companies at hand could expect in a more stable market.

You don’t have to look hard to find examples of IPOs that fell flat. Take Uber for instance, a company that went from a $120 billion IPO valuation prospectus to falling to half that worth just nine months later. Uber was subsequently known as the stock market debut that lost more in value than any other American initial public offering since 1975. This was largely due to one of Uber’s largest competitors in North America, Lyft, going public shortly before Uber, and promptly falling below its offering price on the second day of trading, creating scepticism within investors of the ride share app.

Current investor hesitancy could be exacerbated by the latest rise in interest rates which have risen for the third time in six months in the UK as the Bank of England tries to soften the impact of the rise in the cost of living. The rise has affected the IPO market greatly – last year there were 1035 IPOs worldwide, which represented a new record. Global IPO proceeds gained a record $608bn as activity surged and valuations were pushed higher by strong investor appetite for equity. However, the rising interest rates have severely dented that appetite, having a significant impact on the amount of IPOs this year and hindering companies’ plans. For a lot of the biggest names, an IPO remains the main objective, with Reddit and TPG planning their public debuts for several years now. However, with worldwide markets continuing to fade, their best move could be to hold off and continuing to plan their debut.

Chris Biggs, Partner at Theta Global Advisors – discusses the external factors affecting the IPO market and why it might be best to wait:

“Rising interest rates have caused a significant shift in the IPO market. Moves must now be made to counter growing inflation and the recent rise is a significant step. Global inflationary pressures will grow considerably over the next few months, whilst growth in economies that are energy importers is likely to slow. Companies must consider the external business obstacles in great detail before continuing with an IPO and might find more success from holding off on plans to go public.

“With major companies continuing with their public offering plans throughout the next quarter, the optimistic outlook is that the market will turn around and rebound. This could provide several exciting opportunities for investors throughout the rest of 2022, however, with the market as volatile as it is at the moment, the risk of these companies’ IPOs falling flat is quite high. It could very well be the smart move for them to pause, plan, and proceed in a more favourable market. Even more, by having astute advisors in place, companies have the opportunity to undergo a successful IPO process, however, they must be fully prepared before continuing with or considering a public offering and have a detailed plan in place.”