Banking crisis may spur IPO return

Despite the gloomy global macroeconomic outlook, dealmaking on Wall Street is showing signs of making a comeback. So far this year, there have been 39 US initial public offerings (IPOs), a 77% increase from the same period last year, according to data from IPO research firm Renaissance Capital. The recent banking crisis caused by the collapse of Silicon Valley Bank and Signature Bank is believed to be the reason behind this resurgence. Tighter credit conditions have pushed some companies to go public as they are unable to access loans from banks and private equity.

The recent boost in IPO activity is unusual as dealmaking typically thrives when markets are stable and businesses feel confident. However, companies have had to explore other options in the current climate. The IPO pipeline is full, with over 1,000 companies worth over $1 billion prepared to go public, according to Barrett Daniels, US IPO co-leader at Deloitte.

The optimism in the market stems from a wave of positivity as inflation peaks, energy prices soften, and China’s economy rebounds. EY analysts believe there is hope for a brighter future despite the current economic and geopolitical backdrop. Investors are closely watching Johnson & Johnson’s spinoff of its consumer business, Kenvue, as it plans to price shares at $20 to $23 in an IPO later this year, making it the largest offering so far this year, valued at around $40 billion.

IPOs and mergers and acquisitions (M&A) in the healthcare industry have been particularly strong, with Refinitiv data showing a 62% increase in M&A activity compared to this time last year, and globally, follow-on offers are up about 22% compared to last year. The rise in IPOs and M&A activity brings in significant fees for financial firms that facilitate these transactions, meaning an increase in activity leads to bigger bonuses and a stronger financial sector. The consensus is that the fourth quarter of 2023 will be the starting point for an IPO market recovery, and it is predicted to be a busy period.