As we signaled in last year's Global IPO Report, elevated inflation and interest rates coupled with lowered economic growth prospects and the situation in Ukraine remain a concern in 2023. More than any specific factor, companies and investors are faced with a pervading sense of uncertainty.

Then, in March 2023, a liquidity crisis surfaced in the US and European banking sectors, an unintended consequence of the rapid rate of change in interest rates throughout 2022, unnerving investors and hitting financial services stocks especially hard.

Everything hinges on how sticky inflation proves to be and, by extension, how high rates will need to go and for how long. Greater clarity and certainty around these variables will have a direct impact on investor confidence and companies' appetite to brave the public markets.

For these reasons, the first half of 2023 looks set to be quiet. Any recovery is likely to be gradual and tentative. Typically, secondary deals tend to dominate during weaker economic periods and IPOs lead when growth improves. Certainly, 2023 will not be a repeat of 2021, but with valuations having cooled, ample capital sidelined and inflation slowing down, there are signals that hold promise for what may be in store for the second half of the year.

Pent-up pipelines: Market volatility kept many IPO prospects from realizing their plans in 2022. If inflation is gradually contained, these pent-up pipelines may deliver the necessary supply to bring activity back online in the second half of the year. Notably, Europe saw a strong equity rally in Q4 last year and there were echoes of this rebound in the US. Meanwhile, India's stock markets have shown impressive resilience. A continued recovery in market confidence and successful secondary issuance could pave the way for a steady stream of IPOs coming to market.

Narratives will count for everything: Whether it's energy transition, which is seeing huge federal support in the US, or artificial intelligence platforms with demonstrable use cases, solid narratives have never been more important. Markets will welcome businesses that have buyable equity stories that play into long-arcing themes such as sustainability and industry disruption. Management teams in all sectors need to have honest and realistic conversations about what their companies do and whether markets will welcome their issuances, and if so, at what price.

Investor scrutiny remains high: In 2021, a wide variety of companies could float, and at extraordinary valuations. Now, investors will be paying close attention to company financials, present-day earnings and the robust nature of their growth potential. Companies should expect due diligence to go deeper and be ready to explain how the proceeds of an IPO will be used to bridge growth and take the business to the next stage of its development. It will be no use raising money for the sake of it—investors will be asking, "Why now?"

APAC to hold its top position: With the exception of 2020 and 2021, the APAC region has historically contributed more deal value than either North America or EMEA. Given the sharp decline seen last year, particularly in the US, it's reasonable to expect a US market recovery in 2023 compared to the prior year, but doubtful that this will put North America ahead of APAC. A slower increase and possible plateauing of the Fed rate in H2 should see the US dollar stabilize from its epic rally. This could give emerging markets room to breathe and make foreign equities more attractive by reducing forex risk.

Patience is a virtue: Above all, companies need to take their time. Sentiment can turn on a dime. As author Joyce Meyer once said: "Patience is not the ability to wait but the ability to keep a good attitude while waiting." Management teams should use the current environment to lay the foundations for their planned IPOs such as improving corporate governance, internal controls and reporting readiness, ultimately putting their businesses on a solid footing for when the markets are more welcoming.

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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