IPOs Could Be Headed for a Rocky Road in 2023

Initial public offerings appear likely to remain sluggish for at least several months to start 2023, while special purpose acquisition companies, which provide businesses with alternative paths to public listings, face headwinds of their own.

For traditional IPOs, the first quarter of any year is rarely a robust period as investors often wait for full-year, audited financial results before evaluating prospects. Meanwhile, market volatility that curbed appetite for fresh equity for much of 2022 has not subsided.

Geopolitical tensions, notably the Russian-Ukraine war, persist abroad while supply chain woes and recession fears prevail at home. In addition, the Federal Reserve‘s campaign to subdue inflation with higher interest rates is expected to continue in 2023, adding another variable that makes it hard for capital practitioners to forecast with confidence.

The IPO drought could last years in a worst-case scenario, according to University of Florida professor Jay Ritter. The stock market crash of 1987 and the dot.com bust of 2000 resulted in IPO slumps that lasted about three years, Ritter said, while the financial crisis of 2008 stalled activity through 2009 and only recovered mildly afterward.

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