Proactive Investors - The City of London may have had a sluggish third quarter, blighted by a lack of any stand-out IPOs in the growth or main markets, but a deeper analysis of global trends proves the Square (NYSE:SQ) Mile is far from a laggard in the grand scheme of things.
Global IPO proceeds totalled $38.4 billion in the third quarter of 2023, marking a -27% year-on-year downturn, per Ernst & Young data shared with Proactive. These proceeds came from 350 debuts, 6% less than in 2022.
Meanwhile, UK-specific fundraising in the past quarter was down 36% compared to the same period in 2022.
Removing the impact of Arm Holdings’ blockbuster IPO in the US, which raised nearly $5 billion alone, brings global year-on-year IPO proceeds effectively in line with the UK at -36%.
That, of course, requires ignoring SoftBank’s decision to snub Arm’s home British turf for a listing across the Atlantic.
But at the very least it shows that London is far from the global capital markets foot dragger some commentators purport it to be.
In fact, the London stock market edged out Asia-Pacific’s -41% year-on-year decline in proceeds in the third quarter, while staying lockstep with the wider EMEA average.
Cross-border IPOs still on the down low
Arm’s blockbuster IPO was an outlier in more ways than one. Cross-border IPOs, having reached 20-year lows in 2022, remain severely depressed, mainly due to a cautious Chinese business class.
The US was the only market to see an increase in cross-border IPOs in the first three quarters of 2023, benefitting from the trickle of Chinese corporates testing the stricter regulatory climate.
EY contended that investors across all markets are becoming “more agile and selective” in the face of lower liquidity, seeking companies “with strong fundamentals like financial health, sustainable growth and resilience amid weak economic conditions”.
As a traditionally more conservative equities market, at least compared to New York’s deeper, more risk-friendy pools of capital, this could work in London’s favour.
Even more so if you consider what impact a narrowing valuation gap will have on New York as the world’s most overpriced stock market.
Investors are increasingly scrutinising newer IPO pricings, noted EY, “reflecting more realistic expectations by companies and improved market sentiment”.
SPACs continue to plummet
Special purpose acquisition companies comprise one corner of the capital markets unlikely to see any real improvements.
Following the 2021 reverse-merger gold rush, global SPAC volumes are down -76% year to date, with the US market down 78%, APAC down -74% and EMEA down -67%.
SPACs gained notoriety for the massively inflated valuations and subsequent nosedives, with high-profile companies like Cazoo and BuzzFeed serving as prime examples.