Market downturn sparks longest US tech IPO drought in more than 20 years

The stock market slump since the start of the year has caused the longest drought on US tech listings this century, with experts cautious about the pace of recovery even after industries Other businesses show signs of revival.

Wednesday will mark 238 days without a tech IPO worth more than $50 million, surpassing the previous record set in the wake of the crisis, according to research by Morgan Stanley’s technology equity markets research group. financial crisis of 2008 and the dotcom crash of the early 2000s.

The US stock market has been rocked this year by The Federal Reserve’s fight to reduce inflation through a sharp increase in interest rates. Higher ratios affect stock valuations by reducing the value of future earnings, and raise fears that the economy will be pushed into a recession.

High development technology Stocks that dominated the IPO market broke last year’s record and enjoyed some of the biggest gains during the stock market boom, but they’ve also been disproportionately affected by this year’s sell-off.

The tech-dominated Nasdaq Composite is down nearly 28% so far this year compared with a drop of just over 19% for the S&P 500, while the Renaissance IPO index, which tracks US companies listed in two last year, is down more than 45%.

“There is a huge amount of uncertainty in the market right now and uncertainty is the enemy of IPO market,” said Matt Walsh, head of technology equity markets at SVB Securities.

“I think we will need to see some stabilization in the outlook and investors back to buying existing public securities before they are ready to move further up the risk curve and buy tech IPOs. “.

Life insurance company Corebridge last week completed its first $1 billion IPO since January, and the cautious early reception has highlighted investor caution even for profitable businesses and better established.

Even after the Corebridge deal, total US IPO volume is down 94% year-on-year, with just $7 billion raised in 2022 compared with $110 billion in the same period last year, according to Dealogic data. .

Corebridge is being watched closely as an indication of investor appetite for more deals. But Nicole Brookshire, a partner at law firm Davis Polk that specializes in tech listings, said other factors such as weak earnings reports could have a “bigger impact” on the outlook for developers. new technology practice.

“Guidelines have gotten worse for some companies and sectors [and] she said.

According to FactSet, the information technology groups in the S&P 500 only hit earnings estimates for the second quarter, but forecasts for the third quarter have been revised lower several times, with earnings now expected to fall by 4 percent. % compared with the same period last year.

Many tech corporations have responded to the downturn by focusing more on cutting costs and showing improvement in profitability, but Brookshire said companies will need time to show changes. change is active.

“Last year there was very little talk of profits [among IPO candidates]. There’s more to it now, but the problem with shifting the focus from the growth story to the profitability story is that it takes time for issuers to demonstrate their progress.”

SVB’s Walsh adds that a more positive factor prolonging the drought is the fact that tech companies raised so much private capital before the downturn that it “didn’t have the same sense of urgency.” He said he expected “a small group” of companies to still try to list this year, but said most have pushed the plan back to 2023.

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