2022 US Equity Capital Markets
Year in Review
January 2023
2022 - A Disappointing Year for US ECM
Following record breaking activity from 2020-2021, 2022 was the weakest year for US ECM issuance since the aftermath of the dot-com bubble. Following a prolonged period of low interest rates and economic strength, the music came to an abrupt halt in 2022 as global supply chain issues, war in Ukraine, rising inflation, and a new interest rate regime created an unappealing environment to sell stock.
Total ECM Issuance Fell Sharply in 2022
Source: CaaS Capital Management, Bloomberg, Capital Markets Gateway, SEC.gov
A More Complete Look at Issuance by Sector
Source: CaaS Capital Management, Bloomberg, Capital Markets Gateway, SEC.gov
As we take a closer look at the issuance by sector over the last decade, we can see that the boom of 2020/1 and subsequent fall in 2022 was driven by consumer discretionary, healthcare and technology companies. Issuers in these sectors were commonly pre-profit companies whose valuations skyrocketed, peaking in 2021 and subsequently collapsing as higher interest rates brought an end to cheap capital in 2022.
Despite absolute declines in issuance, healthcare issuance as a percentage of total issuance remained notably resilient.
Issuance in Tech, Healthcare, and Consumer Discretionary Over the Years [1]
Source: CaaS Capital Management, Bloomberg, Capital Markets Gateway, SEC.gov
[1] Data for IPO proceeds ex-SPACs
IPOs
By any means, 2022 was a disappointing year for new issuers to come to market. IPO proceeds in 2022 were $8.5bn, 94.6% below the record-setting $158.5bn raised in 2021. Relative to the normalized five-year average from 2012-2019, proceeds were still down 83.0%. Given the $50bn of average IPO issuance from 2012-2019, the record issuance volume in 2020/1 of ~$245Bn pulled forward almost 3 years’ worth of volume. Notably in tech, a number of high-growth, unprofitable businesses went public in 2020 and 2021 because of favorable market conditions, but otherwise would’ve likely waited another year or more. Many of these businesses have found themselves down over 50% in 2022.
2020-2021 Pulled Forward Issuances Due to Attractive Environment [2]
Source: CaaS Capital Management, Bloomberg, Capital Markets Gateway, SEC.gov
[2] Data for IPO proceeds ex-SPACs
In examining the 2022 class of IPOs with more than $50m in proceeds, we note that investor sentiment was low with 50% of deals pricing at or below the low end of the announced range. On average, the 2022 IPO cohort rose 8.4% on the first day of trading, below the long term average of 17%. However, deals were still able to get through the finish line effectively even in the tumultuous environment, signaling hope for issuers with strong financial profiles as we head into 2023.
Deals Mostly Priced at the Midpoint or Lower in 2022 [3]
Source: CaaS Capital Management, Bloomberg, Capital Markets Gateway, SEC.gov
[3] Data for deals >$50m in proceeds
2022 IPOs Raising >$50m
Source: CaaS Capital Management, Bloomberg, Capital Markets Gateway, SEC.gov
SPACs
The market conditions that propelled traditional IPO issuance in previous years also led to a spectacular increase in the issuance of SPACs. These vehicles rose to prominence due to the lower cost to issuers and quicker, less stringent process to raising capital. In 2022, SPACs and the associated reverse-mergers were met with regulatory scrutiny, widespread redemptions and insider selling as investors pivoted away from the riskier names.
SPACs Saw a Dramatic Fall From the Highs of 2020 and 2021
Source: CaaS Capital Management, Bloomberg, Capital Markets Gateway, SEC.gov
Follow-Ons and Blocks
Follow-ons comprised nearly all of the issuance in 2022, with 482 deals raising $97bn in capital, a 67.1% drop from the $294.5bn in FO capital raised in 2021. This was 47.0% below the normalized five-year average between 2012-2019.
FO Issuance Fell Sharply Below 2021 Highs
For deals raising more than $50m in capital, the average discount was 6.6%, with first-day performance averaging a 2.4% gain. Compared to prior years, discounts remained wide and though performance dropped vs 2021, it remained above average.
FO Discounts Widened in 2022 [4]
Source: CaaS Capital Management, Bloomberg, Capital Markets Gateway, SEC.gov
[4] Follow-Ons with deal size $50m or greater, calculated as simple average of pricing discount to last trade
FO First Day Performance Remained Above Average in 2022 [5]
