Relatively modest activity in December closed the book on a lackluster year for equity capital markets. In the two short windows between macroeconomic data releases and the holidays, there were blips of ECM activity despite downward pressure on the market. 

 

This year, brief market rallies led to subsequent spurts of equity issuance, however December was unable to sustain this trend despite equity gains in October and November. Inflation data and central bankers remained in the spotlight this month. Following the CPI print on December 13th which came in at 7.1% y/y, cooler than the 7.3% expected by economists, Powell’s tone appeared relatively more hawkish than investors were hoping for, quelling hopes for a “Santa Claus rally”. 

 

Continuing on the theme for 2022, IPOs were virtually nonexistent in December, with five small deals raising $56m during the month. This compares with $5.3bn of IPO capital raised in December 2021 which proved to be one of the last chances for new issuers to come to market before the IPO window closed. In 2022, 100 IPOs raised $8.5bn, 95% below the record-setting $158.5bn of capital raised in 435 IPOs in 2021.

 

Follow-on issuance was just below the 2022 monthly average, with 31 deals totaling $6.8bn of equity capital in December. For deals raising more than $50m, the average discount was 8.0%, with one-day performance averaging a 2.6% gain. Led by momentum in biotech issuers, healthcare accounted for 40% of FO activity in December, continuing a trend of relative strength in the sector we’ve seen in the second half. On the year, 477 FOs raised $96.4bn, 67% below the $294.5bn raised in 1,093 deals in 2021.

 

In private markets, Fanatics closed a $700m financing round on 12/6 with approximately 2/3 of new capital coming from new investors. The deal valued the sports-merchandising company at $31bn, a 14.8% step up from the previous round in March which valued them at $27bn. Also making headlines was Instacart, who reportedly cut its internal valuation further to $10bn, down from $13bn in October. The company announced in October that it would pull its plans to go public in 2022 and look for market conditions to improve before pursuing such plans.

 

Furthermore, two late-stage software companies raised down-rounds this month. Dataiku raised a $200m Series F led by Wellington at a $3.7bn post-money valuation, down from $4.7bn from its Aug ’21 Series E round. Snyk raised a $196.5m Series G round led by QIA at a $7.4bn valuation, down from its Jan ’22 Series F valuation of $8.6bn. Having raised large sums of cash in recent years, these down-rounds condition investors on a lower valuation following the correction in growth assets and positions the companies well to tap into the public markets in the near-to mid-term.

 

In summary, a number of disruptive forces shook markets in 2022, including rising inflation, war overseas, geopolitical tension, and rapidly rising interest rates. The amalgamation of these factors created one of the most unappealing environments to sell equity capital in recent years.