Cracking the code | Building winning deal stories - 2022 year end edition
Creating opportunities through insights into IPO readiness, SPAC valuations, and capital market trends.
Market commentry
Recession concerns drive investor hold-and-wait mindset for IPO assets
An anticipated recession has negatively impacted expectations. Economic uncertainty, lower valuations, and continued Fed rate hikes have convinced companies and private equity sponsors to hold off on exiting via IPO or raising capital. And they’ve convinced investors to shift away from high-growth IPO prospects towards businesses with strong fundamentals. These macro headwinds have been reinforced by heightened regulatory scrutiny and increased SPAC redemptions, leading to steep year-over-year drops in both traditional and SPAC IPOs.
Activity is likely to remain sluggish through H1’23. Private equity continues to exit via sales to corporate or other private equity. We expect more favorable conditions to propel IPO activity in H2’23, particularly considering a very healthy pipeline of IPO candidates.
Source: KPMG, see below
Regulatory Drivers
- New SEC rules adopted in 2022 have brought SPAC disclosures, diligence, and liabilities closer to the process followed by traditional IPOs.
- This expanded framework created headwinds for new SPAC formation just as market conditions became unfavorable.
- The regulatory uncertainty, heavily publicized examples of a few bad apples and media negativity have bruised the SPAC market.
Source: KPMG, see below
The battle for IPO investors is won through a differentiated equity story, told in the language of financial and operational performance that support a competitive edge. Key insights lie within the KPIs and are echoed within the MD&A—helping market participants understand where and how company value is generated.
Shari Mager
Partner, U.S. National Leader, Capital Markets Readiness, KPMG US
QUARTERLY MARKET VOLATILITY AND IPOS
While every company’s mix of deal-valuation drivers is unique, overall deal activity—both volume and proceeds—tends to correlate inversely with volatility (VIX)
Volume vs Volatility
Quarterly IPO Volume (Traditional & SPAC) vs average VIX
As the average VIX jumped from 20.8 in 2021 to 25.9 in 2022, traditional IPO volume fell from 426 to 106 and gross proceeds fell from $153.8BN to $8.6BN—a dramatic YoY decline of 94.5%.
New SPAC IPOs fell from 611 in 2021 to 88 in 2022, a drop of 85.6%, while gross proceeds decreased by 91%. The outlook for 2023 remains uncertain amid the Fed’s commitment to high interest rates.
While public and private markets are historically correlated, private valuations have nearly always adjusted more slowly and modestly. Companies are waiting for better public valuation multiples, which may drive an adjustment in the public/private valuation gap that helps open an IPO window.
Nausheer Allibhoy
Managing Director, Tax Economic & Valuation Services, KPMG US
US IPO ACTIVITY - PRIVATE ENTERPRISE VIEW
Annual PE and VC activity by volume and proceeds
After reaching record heights in 2021 fueled by a low-rate environment and pandemic tailwinds, PE/VC backed IPO activity sank dramatically in 2022.
US IPO Activity – Venture Capital
US IPO Activity – Private Equity
Companies should build resilience and adaptability to the new age of uncertainty. They should regularly review their business plan, financial model, and equity story. And they should focus on growth by identifying their value drivers.
Shari Mager
Partner, U.S. National Leader, Capital Markets Readiness, KPMG US
SPAC & IPO investors look at a handful of valuation drivers. Do you know yours?
In the competition for investors and capital, investment narratives matter. They cut through the deluge of data and analysis, and help companies sift real windows of opportunity from market noise. The most compelling deal stories come from insights about a company’s unique mix of valuation drivers. Sector. Markets. Customers. Portfolio mix. Capital structure.
We can help you understand and improve the factors that drive maximum deal value for your offering.
Source (for all market commentary and data cited on this page): KPMG, US Equity Capital Market Update, Q3’22, October 2022
Source for US IPO Activity - Private Enterprise View: Renaisssance capital
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