Capital markets should pick up in mid to late 2023, provided economic stability returns
Given the number of IPOs that have been put on hold, we expect IPOs to return once there is a sufficient period of economic stability. We anticipate this to be mid-late calendar 2023. However, a few factors do need to work in the market’s favour for this to occur.
It will pay to be prepared so that you minimise the lead time on your IPO and activate your IPO early.
See Readying yourself for a change of season for further details on pre-IPO preparations.
Pre-IPO rounds will continue
As we predicted in 2022, pre-IPO rounds will continue to play an important role in the evolution of businesses, especially given the lack of IPOs. Most pre-IPO rounds are taking the form of convertible notes.
Climate change and ESG disclosures will remain important
Given institutional and superannuation investor interest, as well as general market interest, we expect issuers who are dealing with climate change and ESG issues to focus on these disclosures in their prospectuses. Due diligence will need to be conducted to mitigate claims and regulatory scrutiny alleging greenwashing.
Covid-19 related disclosures are not as important as they were
Given we have all gotten used to the implications of living with Covid-19, we expect that prospectuses will focus less than before on the consequences of Covid-19 on the issuer. As a result, we expect that forecast periods in disclosure documents will return to normal (between 6 and 12 months). There may also be scope for companies to gain support for their IPOs through the use of longer escrow periods.
See IPOs by the numbers for further details on escrow periods in 2022.
Back-end bookbuilds will be popular until economic stability returns
Given the current economic volatility, we expect that back-end bookbuilds will be more popular, until economic stability returns, given that they allow investors (particularly institutional investors) to reduce or manage the risk of price volatility between the determination of the offer price and the completion of the IPO.
As economic conditions stabilise, we expect that front-end bookbuilds will regain popularity.
Minerals IPOs will be popular and tech IPOs will be harder
Given global energy shortages, supply issues and price rises, we expect that minerals companies (especially those who focus on minerals such as lithium used in batteries) will be a leading source of IPOs in 2023.
In light of the volatility of interest rates, the elasticity of tech share prices, and the previous years’ high private valuations of tech companies which have subsequently fallen, tech IPOs are likely to be harder to complete unless they have a clear path to profitability. This could result in tech companies becoming more reliant upon crowd-sourced funding and the private equity market than IPOs.
SPACs likely to be less of a transaction alternative
Given the diminishing popularity of SPACs in the US and high redemption rates, the emerging SPAC market in Australia is likely to prove less of a transaction alternative.