Syntax U.S. IPO Review

Searching for Momentum in the IPO Drought March 2023

Poor market conditions effectively shut down the U.S. IPO (initial public offering) market in 2022. We analyzed previous IPO droughts (2003 and 2008) to assess when the market may rebound.

Despite strong performance on the day of issuance, companies that went public in 2021 have disappointed significantly – many are down more than 50% relative to broad market performance (e.g., S&P 500), and a number of these companies are concentrated in the risky, early-stage pharmaceuticals space.

Investing in IPOs remains a profitable strategy for investors who can garner allocations; however, when the market becomes hot, investors should avoid poor-quality deals and companies with unrealistic valuations.

The U.S. stock market saw a dramatic decline in the numbers of IPOs in 2022, when new issuances collapsed dramatically after 2021 and the S&P 500 fell almost 20% for the year. Exhibit 1 highlights two periods over the past thirty years when comparable IPO droughts (i.e., when the average monthly number of IPOs was less than 10) were observed: July 2002 to July 2003 in the aftermath of the Tech Bubble and August 2008 to July 2009 during the wake of the Global Financial Crisis. In the graph, we also emphasize two notable “Hot IPO Market” periods (i.e., when the average monthly number of IPOs was greater than 25): the tech-led bull market from the late 1990s into 2000 and the recent market recovery following the pandemic drawdown.

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