Markets have had a rough 2022 so far, and the momentum for companies going public has slowed down for a variety of reasons.
"From an IPO standpoint, there was a strong backlog of companies that were looking to go public, and market conditions have slowed down," New York Stock Exchange (NYSE) Vice Chairman and Chief Commercial Officer John Tuttle told Yahoo Finance's Brian Sozzi at the World Economic Forum in Davos, Switzerland (video above).
Three factors are causing the trend in Initial Public Offerings, Tuttle explained.
"First of all is the macroeconomic environment, what the Fed is going to do, the size, timing, and frequency of rate increases to tackle inflation," Tuttle said. (The Fed signaled half-point rate hikes in June and July to address the inflationary environment.)
"The second is the geopolitical environment— what impact is that having on companies, and how is that driving incremental volatility in the marketplace when it comes to energy prices, food prices, and how that fits into cost structures?"
And "the third is just investor sentiment," Tuttle added, which is "a rotation out of growth stocks more into value stocks and how that's impacting deals in the IPO pipeline. So a lot of the companies that are thinking of going out are just pulling back and reassessing the timing and perhaps the size and the comparables for when they actually do come to market."
Last year was a banner one for IPOs — a total of 2,097 companies went public globally last year (excluding SPACs), according to Refinitiv. That was an 51% increase in the number of IPOs from the previous year.
The beginning of this year started off with the same gusto as 2021, with 321 deals raising $54.4 billion in the first quarter, but since then IPO activity has dropped, according to a report by EY.
"There was a strong backlog of companies that was looking to go public. And market conditions have slowed that down," Tuttle said. "There's also a strong pipeline of companies considering going public as well. And when the market conditions are right, you'll see those companies come."
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Aarthi is a reporter for Yahoo Finance. She can be reached at email@example.com. Follow her on Twitter @aarthiswami.