ANALYSIS: IPOs Slim Down to Pre-Y2K Size During Market Winter

Initial public offerings remain huddled amid their winter of discontent, shrinking in size as they endure turbulent market conditions and frigid economic headwinds made colder by a startups-centered banking crisis almost no one saw coming (but perhaps more should have). Certain sectors, such as energy, are doing relatively better than others, but the market is still struggling to find its footing as a hawkish Federal Reserve tightens access to money and the economy teeters on the edge of a recession.

The IPO Market Continues Its Freeze

IPOs lost their mojo at the beginning of 2022 and still haven’t found it. Forty-six companies went public in the recently completed quarter, raising less than $3.5 billion. That represents nearly double the 25 offerings (with $2.3 billion raised) completed in last year’s fourth quarter, but it falls significantly short of the 95 offerings and $14.2 billion in raised capital in the first quarter of 2022. Worse, those figures aren’t even one-quarter of the Q1 2021 deal total of 417 IPOs ($149.9 billion). But those were all-time high numbers for IPO deal counts and capital raised.

IPOs Are Adjusting to the Cold

IPOs find themselves in a truly challenging environment. To cope with changing markets and diminished investor appetite for risk, offerings have slimmed down while many companies are seeking financing elsewhere for the time being. The small number of offerings brave enough to go public are smaller—substantially smaller—on average than in prior years.

In the first quarter, 78.4% of priced IPOs fell into the smallest “bucket” size of up to $100 million. (The smallest bucket size, as defined on the Bloomberg Terminal, is for offerings from $0 up to $100 million. The smallest priced offering during the quarter raised $4.05 million.) That smallest offering bucket hasn’t represented such a high percentage of initial public offerings since 1998, when 81.1% of completed offerings were the smallest size.

Another adjustment in the IPO market is the mix of companies going public. Technology and financial companies have been hit hard by the market pullback and are choosing to stay private. Meanwhile, the energy, industrial, and utilities sectors are relatively ascendant.

The share of technology companies in the IPO market was 17.4% in pre-pandemic 2019, then fell to 12.8% in 2021, and represented only 3% of IPOs in the first quarter of 2023. Financial companies skidded from 17.8% of all IPOs in 2019 to 8.3% in 2021, then further down to 5.4% in the most recent quarter.

Utilities had no IPOs in 2019, represented only 0.2% of IPOs in 2021, and now have an 8.3% share in 2023. Industrial companies soared from only 1.4% of the IPO market in 2019 to 28.6% in 2023. Energy companies have enjoyed an impressive rise as well; they notched only 2.4% in 2019, and dipped even lower to 1.3% in 2021, but now have a 12.5% share of the IPO market. Of particular note, last year, energy stocks outperformed every other group in the S&P 500, encouraging energy companies to test the IPO market this year.

Have SPAC IPOs Gone Away? Nope.

Much has been said about the demise of SPACs, but they have not gone away. Although they no longer lay claim to a majority of the IPO market, as SPACs did in 2021 when they garnered over 56% of initial public offerings, SPAC IPOs still represented 21.6% of the market by count in the first quarter of this year. SPAC IPOs were even more substantial in terms of amounts raised, taking in 25.8% of all IPO capital raised during the quarter.

SPAC IPO performance in Q1 remained above its historical yearly average market share of 21.3% since 2000. And it was far above the historical annual median of 8.7% over the same period.

Pending new SEC rules governing SPACs and other blank check companies could, if adopted, severely crimp SPACs going forward. But for the moment, their performance is healthy enough, considering the very difficult market conditions and foreboding regulatory environment.

Bloomberg Law subscribers can find related content on our In Focus: SEC Rulemaking page, our In Focus: Special Purpose Acquisition Companies (SPACs) page, our Equity Deal Analytics page, and on our Securities Practice Center resource.

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