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IPO markets struggled in 2022. It’s not the first time this has happened, so how long do you think the slump will last?

There’s no question that 2022 has been a torrid time for new issuances, not just in London but on a global basis. Taking a one-year time horizon here however misses out on several important contextual points, including a dearth of activity especially during the early stages of the COVID pandemic, followed by a dramatic uptick as investors clamoured to deploy the free capital they had accumulated.  

What we can take some solace from is the fact that historically such downturns have been rather short-lived, lasting a couple of years at most, so we’re hopefully not talking about lost decades here. What’s more, as we move into 2023, hopes are running high that the worst of the inflationary pressures may start to abate and with this, central banks globally can start to take a more measured approach to monetary policy. Both these factors are likely to provide confidence in terms of valuations, in turn helping restart momentum for IPOs and other new issuances . After all, funds lose absolute value if simply held on deposit so the drive to investments is compelling.

Much has been said about London’s ambitions to deploy meaningful capital market reform. Will the evolving regulatory situation have an impact here, or is it cyclical economic factors that stand to drive a change in sentiment?

There are a number of policymakers and market participants who see the listing reforms as being the true catalyst here. That’s a conviction which is underlined by the idea that many of these changes can be in place by the end of the first quarter, and indeed some initiatives have already been deployed. But reducing the free float requirements will, without doubt, widen market appeal whilst the secondary market capital raising review which paves the way for faster book builds also seems likely to meet with popular appeal.

With these fundamental innovations acting as a bedrock, the macroeconomic cycle – which it would seem fair to say is unlikely to deteriorate further in 2023 and many hope will indeed improve significantly – should prove to be the perfect complement to the proposed market reforms.

Volatility is often seen as justification for deferring an IPO – but is this accurate?

It’s often cited, but there are several factors which need to be taken into account here. Badging it just as volatility may be convenient but it only explains a small part of the problem and indeed this is something that the proposed capital market reforms should go a significant way to resolving, too.

If you have a listing regime that is so proscriptive as to only function well in the very calmest of market conditions, then it’s going to be a challenge. However, changes such as the reduction in free float make it easier for advisers to place new issuances, whilst also giving founders and legacy owners the confidence that they’re not going to leave themselves significantly disadvantaged if markets unexpectedly lurch higher once an offer has been priced.

More flexibility in how capital markets function ought to reduce the potential impact of volatility.

Does the IPO adviser community need to take a fresh look here?

We believe IPO teams must have the confidence to engage with prospective investors at an earlier point in time, as this will help ensure that any new issuance activity can be structured in a way that meets with audience demand. Public markets aren’t just a venue for investors to deploy capital, but also provide an invaluable route to allow existing shareholders to realise value. However, this all has to be done on realistic terms. In addition to the uptick in IPO activity, if 2021 illustrated anything else it was the excessive valuations which were achieved, based on the race to deploy capital. Prospective investors will be keen to see true change here if market confidence is to be regained.

An amended version of this article originally appeared in the January 2023 version of AIM Journal. You can download a printable version here.

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