The State of the IPO Market: What You Need to Know

If you take a look at the number of IPOs over the past year, it’s clear that the IPO market has been at a standstill. With rising interest rates, more eyes on regulation, and uncertain economic conditions, most companies who were primed for IPO a year or two ago decided to hit pause and wait patiently for a window in the market to open back up. 

IPO market: where we are now 

The 2023 outlook for the IPO market expected a slow start to the year, with indicators leading to an increase in activity in the latter half. However, the 2023 IPO market has performed higher than anticipated so far, with over a 130% increase—when calculated using the NASDAQ IPO Calendar—in the first quarter compared to last year’s fourth quarter. Additionally, through May 2023 we have seen an increase of 60% in the volume of secondary offerings, despite uncertain economic conditions  

But if we are focused on IPOs, why do secondary offerings matter? "Classically, follow-on transactions have been a precursor to the IPO market reopening," said Adam Fleisher, Cleary Gottlieb Steen & Hamilton LLP partner.

With an expected increase in the IPO market, companies still have to be selective about their path to public and be ready to execute their offerings when the window in the market does open. To ensure success, companies are looking to establish a clear and strong record of profitability and performance ahead of its IPO. Why? Right now, investors are particular about their holdings and prefer to pick a strong and stable investment versus a risk.  

IPO market: where we’re going 

We’re seeing a trend in the IPOs that have occurred this year. While tech has always been a stronghold in the IPO market, the largest IPO from that sector in Q1 was Nextracker, a renewable energy technology company, raising nearly a third of a billion dollars. Coupled with an overall increase in activity in the energy sector, it can be argued that investors are looking for stable and regulatory-friendly investments. 

Another trend we are seeing is the way companies are choosing to go public. There’s been a decrease in SPAC and M&A activity, following more scrutiny from the SEC around SPACs and a mini-banking crisis causing M&As to lose traction. 

But recent SEC regulation to the NYSE and NASDAQ markets has made it easier for companies to go public via a direct listing/traditional IPO. With these regulation changes, it’s expected to make the process more accessible, potentially contributing to an increase in the IPO market in the second half of 2023 and early next year. 

IPO market: what you need to prepare for 

Now that you understand the state of the IPO market, what are the next steps? Well, if you’re looking to go public as soon as the market stabilizes, or if you’re in the beginning stages of planning a private to public path, now is the time to start preparing, according to EY. 

“Companies waiting for the public markets to reopen should use this quiet period to their advantage,” said Americas IPO Leader Rachel Gerring. “Focus on building rigor around corporate governance, accounting and management development. Operating as a public company requires meticulous preparation to confidently face unexpected hurdles. With proper preparation, companies will be better positioned when the window of opportunity reopens.”

It’s often recommended that companies who plan to go public operate and report like a public company for a year or two before actually initiating the IPO process. By doing so, you have set up a reporting cadence and created a reliable financial history to refer to during the IPO process.If you’ve been preparing over the past year or so and feel confident about the state of your company, now is the time to look for partners, law firms, vendors, and filing agents to help you through the IPO process. 

While we’ve discussed the importance of leveraging technology to help you with your IPO, including financial reporting and replacing financial printers’ services, it must be understood that going through an IPO requires significant planning and investment and you want to ensure you are getting the most of those investments—including your technology spend. 

Investing in something for a single transaction doesn’t sound like the smart move, but investing in a platform that can grow with your company as you go public and adjust to a being a public company, that does. 

Want to chat more about how Workiva can help you during your IPO journey? Request a demo with a Workiva representative today. 

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