Once again, the technology sector dominated worldwide IPOs in 2022, despite experiencing one of its worst years on public stock markets in over a decade. Nasdaq, the most closely watched tech-centric stock exchange in the world, did not have a single technology IPO valued over US$1 billion last year. The largest came in just below this mark, at US$990 million, which involved Intel spinning off its self-driving cars business Mobileye five years after acquiring it. The benchmark Nasdaq 100 saw a 33 percent year-on-year decline last year—its worst performance since 2008.

Notwithstanding the downturn in IPO activity, the tech sector had more public offerings in 2022 than any other sector—even with a 47 percent drop in volume year-on-year to 335 IPOs (including SPACs) in the sector globally. It was also the highest value sector for IPOs during the same period, although there was a 75 percent decline, year-on-year, to US$39.5 billion.

This downturn in activity reflects the fact that the US tech IPO market became a relative ghost town following an unprecedented run. The previous year saw a slate of highly anticipated IPOs, including electric vehicle company Rivian, Toast (a software firm that provides solutions for restaurants), GitLab and HashiCorp (both cloud software vendors) and the stock-trading application Robinhood, not to mention the direct listings of crypto platform Coinbase and video game smash Roblox.

In 2022, that momentum came to a halt. At the start of 2022, risk-averse investors took a more cautious approach, favoring solid financial fundamentals such as present-day earnings, inflation-resistant business models and cash-heavy balance sheets to help withstand an economic downturn and sustained higher interest rates. This caused some pre-IPO companies to revise their plans, having observed their counterparts in the public market experience significant declines in their stock prices, some dropping by as much as 90 percent from the record highs achieved in the previous year.

View full image: Global IPOs by sector 2022 (top-ten by volume, incl. SPACs) (PDF)

View full image: Global IPOs by sector 2022 (top-ten by volume, incl. SPACs) (PDF)

Shoot for the STAR

While traditional venues may have been quiet, a lot of action took place on China's Sci-Tech Innovation Board, part of the Shanghai Stock Exchange and also known as the STAR Market. This included the largest tech IPO globally: Hygon Information Technology, which makes and distributes computer components and is on a US Department of Commerce watchlist requiring American companies to seek approval before selling goods and services to Hygon.

Mainland China's IPOs primarily focus on local investors due to the challenges posed by capital controls that restrict foreign investors from participating in the initial IPO allocation (but not post-IPO trading). As a result, these IPOs generally experience significant price increases when they begin trading. The Hygon IPO was no exception, trading up by 67 percent on its first day.

In a similar fashion, shares of Jinko Solar had a first-day surge of 111 percent on the STAR Market as overseas investors crowded into one of the world's largest solar panel manufacturers post-IPO. The company raised just under US$1.6 billion from the offering, putting it in second place in the technology sector to Hygon, with Mobileye's return to the Nasdaq representing the industry's third biggest float.

Focus on financial services

The second most active sector globally behind tech on a volume basis was financial services (excluding insurance), which performed relatively well by volume at 284 deals (including SPACs) despite a 67 percent fall, year-on-year, but IPO values dropped dramatically, raising US$20.6 billion during the same period, a 90 percent decline.

TPG's float was big news because it had been a long time coming and the PE firm joined the ranks of The Carlyle Group, Apollo, KKR and Blackstone. The latter mega fund managers have enjoyed a change of fortune in recent times, following years of relatively tepid post-IPO share price activity. By adding new strategies and scaling up their assets under management, public market investors have come to recognize their inherent value.

Notably, 18 of the top 25 finance-related IPOs in North America were SPAC offerings. These deals were possible because investors benefit from optionality. SPACs raise at a nominal share price of US$10, offer a yield and investors can redeem their cash once a merger target has been found because either they do not like the deal or have changed their opinion on the state of the overall market. Notwithstanding looming regulatory questions, these factors and their fast route to market make SPACs comparatively painless IPOs in contrast to traditional corporate deals.

Having said that, these IPOs were on the smaller side. After the US$750 million Screaming Eagle Acquisition Corp. float, the next largest was the US$525 million Gores Holdings IX IPO. No other SPAC in North America was valued over US$500 million and this trend toward smaller deals is likely to continue until further notice is provided by the SEC.

Health care highlights

The health care sector came in a distant third place by volume at 150 listings (including SPACs), a 58 percent drop year-on-year. These were valued at US$15.2 billion in aggregate, putting the sector in fourth place by value behind technology, automotive and finance. Health care listings were also of the smaller variety. Only one health care IPO made it into the top 25 deals across all regions: Shanghai United Imaging Healthcare's US$1.6 billion debut, which was also APAC's third-largest deal. Similar to Hygon and Jinko, United Imaging's shares flew after opening. United Imaging (a medical imaging and radiotherapy equipment manufacturer) claims to own the world's largest medical equipment production base and its market dominant position made it a must-have for institutional investors.

Generally, health care has proven to be a haven for investors. Case in point: The S&P 500 Health Care Sector Index was flat in 2022 against a backdrop of falling indices. Demographic pressures mean that demand for care services continues to climb irrespective of the macroeconomic climate and companies in the sector often benefit from large margins. These are the kinds of characteristics that investors are looking for in today's inflationary environment. However, even with these perennial tailwinds, health care IPO value was still down year-on-year, falling by as much as 75 percent.

In 2022, companies were waiting for calmer waters before choosing to float. This means that pipelines have built up and these businesses are now seeking signs of stabilization in 2023 to act on their plans.

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