IPOs Facing Slower Start in New Year

something else that's dead. You know, you got tumble weed blowing through the IPO IPO desks and exactly right, and they're gonna see it in their bonus checks. Unfortunately, are good friends there. But check this data out Ernst and Young, that's how I refer to them. But their e Y, that's their their new branding EY. Reaching least, it's quarterly IPO data report which shows overall deal proceeds dropped and a number of deals dropped seventy percent. I don't think

I've ever seen numbers like that. So let's stake into that. We can do that with rape. Rachel Garring, I p O leader, uh tough business in two for Uy Americas. She joins us via zoom from Nashville, Tennessee. Rachel, thank you so much for joining us here. I don't think I've ever seen numbers like that. Help give us some contexts for what happened in the I p O market

this year. Well, the I p O market certainly took a reverse turn from what we saw in roughly ninety I p O s um here in the US, which is the lowest number in volume that we've seen since two thousand and nine, eight point six billion in proceeds raise, which is the lowest in proceeds raised we've seen in over two decades so far from what we saw in

one that broke records, going all in the opposite direction. Well, it's a good point, you know, these year over year numbers are comparing the market to a just a bonanza. Everyone was coming to market, uh, spacks and everything else in I guess so that that's part of the story behind that huge percentage shop. But Rachel, how does this

look now going forward? Or is there now a bottleneck of I p O s that we'll see in three if the conditions are a little bit better, you know, can we expect to see a lot of deals that were canceled sort of come come to market next year. It's hard to say what certainly has been impacting the I p O market for twenty two. And I've heard in your earlier segment those those headwinds that all companies are facing, you know, are not going to change course

immediately in three. So expect a slower start in in twenty three, hopeful for the back end of twenty three for volatility to settle out and the market to reopen, and then certainly into twenty four we can start to be optimistic as well. But we we need you know, come needs to come to market that have strong performance, strong profitability. Those are what those are the types of companies that are really going to attract investors on the onset.

All right, well, given that backdrop Rachel is the sack market dead, I don't think this back market is dead. We're not going to see the volumes that we've seen in UM. We need three things to happen with SPACs. One, some of the backlog needs to be cleared out, so we will continue to see liquidations and then hopefully also

some deal announcements in mergers to be completed. We also need the regulatory overhang to clear out, so final rulemaking from the SEC and then um third is overall market perception really needs to improve around SPACs, and so that's going to start with performance of those companies that already completed a DESPAC to start to improve and really drive some um improved investor perception. You know, Rachel Paul made a good point about the actual bankers, the humans involved

in all these deals. What do you think most banks do do they do they keep these bankers around in case there is a rebound or maybe you know, if things get bad enough, there's a lot of secondary offerings to work through. What what is you know, kind of the mood of the bosses, of the bankers, of of ip O desks going into Yeah, it's hard for me to say in terms of, you know, the exact mood um in the on the banking side of the house. But the one thing I would say is we've been

here before. We've seen retrenchments in I p O activity like we're experiencing right now, and we've also seen the quick recoveries that come. So it's hard to predict exactly when that I p O recovery will occur, but when it does, it comes quickly, and the markets certainly improved, so I think we can all weather through this storm.

And right now, companies are focused on taking this time to be focused on the business, focused on their fundamentals, shoring up and preparing to go public, which is looking at their talent and taking um, taking um the advantage of the market right now to really attract you know, strong talent and improve business performance. Did you think it's a lower interest rate environment sort of a prerequisite to get I p o s to market? Uh? You know, is it just get those animal spirits going again when

money is cheaper. We don't think that low interest rates that we've experienced, you know, for for a number of years is a necessity. I think what we need is just um. We need the interest rates just to level out. We need a level of um predictability. But we've had I p o s in high interest rate environments before, so interest rates coming down to what we've been experiencing close to zero is not a necessity, Rachel. One of the drivers historically for initial public offerings has been, uh,

you know, the private equity business. They're bringing some of their portfolio companies public. Do we have any kind of information on maybe the backlog there will private equity sponsored companies be a source of IPO activity when the market does come back, certainly, UM, We definitely expect when the market starts to reopen, PE will be a strong UM

influencer of those companies coming to market. Right now, PE is being cautious where with where they put their investments UM today, and we're seeing them place more investments into their current portfolios UM and helping those portfolio companies really prepare UM be you know, improve their strength and viability through you know these you know, you know, unpredictable times

that everybody's facing right now, you know. H I wonder geographically if there were any areas of the country that were hit harder in this slowdown in I p O s than others geographically UM hard to say, particularly across the US if that's your focus, but certainly the text

sector overall. So then you could say the West Coast UM has been you know hit in and outside me and are a lot of that is really when you think about those who went public in one and their performance today currently trailing well below the market UM, does not bode well for the tech sector, and so that's been impacting certainly that West coast. Yeah, and I kind of follow up on that a little bit. I mean, there was a call to be made over to last

I don't know, really a dozen years. There's so much venture capital money out there, so much private equity money out there, that a company really didn't need to come public, or did need to come public as soon as maybe it historically did, it could wait a little bit. Is that still the case, or is some of that VC money and PE money kind of I don't know. Pulling back, maybe I would say there's certainly a lot of dry

powder still out there with PE and VC. They're they're definitely being more cautious in how they put that money to work. We'll see how UM that trend continues throughout three But they're proceeding in making investments cause just Lee and UM, you know, carefully reviewing UM. What they're looking to invest in. E S G is a prime topic that UM a lot of that. We're seeing an increased focused UM from PE in particular through due diligence and

so forth. But I definitely think PE and BC will continue putting their funds to work UM and that will always provide companies, you know, opportunity for additional capital. But with rising rates the cost of debt, that's certainly going to impact PE and VC. So that's where the math and the I p O math may start to work, may not for certain companies who just need the capital. All right, Rachel, good stuff, will really appreciate it. Rachel Garring, I p O leader for e Y America's joining us

via zoom from Nashville, Tennessee. And I'll read that data again. I mean, I don't think I've ever seen that. E Y recently released its quarterly IPO data report, which shows overall deal proceeds drop nine and you get the numbers here, A hundred fifty five billion last year, nine billion years. Go figure man. I will say, though, Paul, you know, and listeners on the radio can't see this. But Rachel has the most festive zoom background. Is it's very good.

Good to see her holiday spirits not been impacted. Rachel. Gearing from e Y America is good stuff. They're looking at these markets again. We closed higher today, you know, we'll take that. I mean it was a week and it's good for a Friday. We've got Christmas eve Eve and we'll come back. We'll finish out the year next week, and then we'll start off a new year, hopefully a better year for equity and fixing the markets. This is Bloomberg