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With 321 IPOs announced globally in the second quarter of 2023, the IPO market has officially hit its lowest levels since 2020. There are several factors that have cooled the pandemic boom, most notably of which is the tightening of monetary policies as central banks look to alleviate high inflation with high interest rates.
These same policies are pushing costs to unattractive levels for potential investors. "The rising cost of capital has definitely put a damper on IPOs," said Partner Ro Sokhi.
Part of the U.S. market decline is attributed to the decrease in SPACs, which dominated during 2020 and 2021, but the European market has likewise seen a sharp fall from their peak of 200 in fourth quarter of 2021. As central banks move to end the current cycle rate hikes, Sokhi said the stabilization could bolster IPO activity. "At least keeping the rates where they are would be helpful to investors … to think about what the return would be," he said.
As for a potential return to the 2021 boom? The "perfect storm" of fiscal and monetary policy that supported IPO activity in 2021 is unlikely to be repeated in the near term, Sokhi said. Nevertheless, he pointed to the success of CAVA Group Inc., which launched its IPO in June, as an example that could lead to other similar market debuts.
Read the full article published by S&P Global.
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