Will we see an IPO boom in 2023?

After a dismal period for new company listings globally, our City writer looks at the likelihood of a better 12 months ahead and what type of company will be successful next year.

IPO activity has all but dried up in 2022 as just two companies valued at over £100 million have so far braved testing conditions to make their London stock market debuts.

New Energy One Acquisition Corp (LSE:NEOA), which is backed by energy giant Eni, raised £175 million in March, and North Sea exploration and production firm Ithaca Energy Ordinary Share (LSE:ITH) launched on 9 November in a £2.5 billion float that raised proceeds of £262.5 million.

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However, Ithaca shares are down 28% from their 250p a share debut, reflecting uncertainty caused by revisions to the Energy Profits Levy in the Autumn Statement.

Having seen a record year for IPOs in 2021, investors will be hoping that those listings originally scheduled for 2022 have been postponed rather than cancelled.

Broker Liberum is confident that this will be the case after predicting some 40-50 mostly smaller-sized IPOs will take place next year for a total fundraising worth around £6.9 billion. That compares with the UK’s 10-year average of 43 a year worth £7.3 billion.

Liberum believes a track record of profitability, effective cost management and proven revenue growth will be essential requirements for companies looking to float.

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One potential newcomer is AT85 Global Mid-Market Infrastructure Income, which announced on 21 November it intends to float on the London market.

The UK investment trust, which is focused on transport and logistics, utilities and digital infrastructure, has access to an initial portfolio of assets of £98.5 million and a total pipeline of £539.8 million.

In the US, Liberum noted that IPO volume in 2022 has been a mere $6.2 billion (£5.1 billion) with only two IPOs raising more than $250 million (£205 million) each. The picture in Europe would have been the same were it not for the 7.9 billion euros (£6.8 billion) raised by Porsche AG Preference Shares (XETRA:P911) in September.

Apart from that mega-IPO, there were three new listings with market caps of between 500 million to 1 billion euros (£430 million-£860 million) and all these were in the first quarter. The result has been the lowest IPO activity in the US, the UK and eurozone since 2009.

Global volumes on merger and acquisitions (M&A) also declined sharply in 2022, but the UK proved to be the exception as overseas raiders were lured by a cheap currency and some attractively valued assets.

In the first three quarters of 2022, Liberum noted 44 deals involving FTSE All-Share companies compared to 50 during an “exceptional” 2021 and an average for the past two decades of 35.

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While the number of deals in 2022 was relatively high, the average size has shrunk dramatically. The deal volume as a share of total market cap was 0.2% in the FTSE 100, 0.3% in the FTSE 250 and 5% in the FTSE Small Cap.

In 2021, 9% of FTSE 250 market cap changed hands via M&A and 5.7% of the FTSE Small Cap.

Liberum said: “In other words, even in the small-cap space where we have seen most of the activity this year, the volume of deals was well below average.”

The broker said acquisition activity by private equity firms returned to 2017 levels, a retrenchment that happened despite fundraising continuing at relatively high levels.

Liberum added: “The main problem seems to be that many private equity firms are struggling to offload existing investments at reasonable multiples and free up space for new deals.”