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Market downturn triggers longest US tech IPO drought in over 20 years

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A year-to-date stock market slump has left U.S. tech stocks in the longest drought of the century, with experts optimistic about the pace of the resurgence, even after signs of a temporary resurgence in other sectors. I am cautious.

A study by Morgan Stanley’s Technology Equity Capital Markets team found a value of more than $50 million, surpassing previous records set in the aftermath of the 2008 financial crisis and the dot-com crash of the early 2000s. A technology IPO will take place on Wednesday for 238 days.

The US stock market has been rocked this year by the Federal Reserve’s battle to keep inflation down through aggressive rate hikes. Rising interest rates hurt stock prices by reducing the value of future earnings, raising fears that the economy could be pushed into recession.

High-growth tech stocks, which dominated last year’s record-breaking IPO market and enjoyed the biggest gains during the stock market boom, have been disproportionately hit by this year’s plunge.

The technology-dominated Nasdaq Composite is down nearly 28% so far this year, with the Renaissance IPO Index tracking U.S. companies listed in the past two years down more than 45%, compared to a drop of just over 19% for the S&P 500. .

“There is a tremendous amount of uncertainty in the market right now, and uncertainty is the enemy of the IPO market.

“I think the outlook should stabilize somewhat and investors should step in to buy existing public securities before they move further up the risk curve and buy technology IPOs.”

Life insurer Corebridge last week completed its first $1 billion U.S. IPO since January, and its cautious early welcome has highlighted investor caution even in more established and profitable companies. did.

Even after the Corebridge deal, overall U.S. IPO volume fell 94% year-over-year, with $7 billion raised so far in 2022, compared with $110 billion in the same period last year, according to Dealogic data. It’s nothing more than

Corebridge has been noted as a sign of investor appetite for further deals. But Nicole Brookshire, a partner at Davis Polk, a law firm that specializes in tech company listings, said other factors, such as weak earnings reports, “will have a huge impact on the outlook for new tech companies. ” said it was possible.

“Guidance has deteriorated for some companies and sectors [and] Many companies are feeling the effects of macro headwinds, which are impacting valuations,” she said.

The S&P 500’s IT group nearly met its second-quarter earnings forecast, but its third-quarter forecast has been repeatedly revised downwards, and earnings are now expected to fall 4% year-over-year, according to FactSet. increase.

While many technology groups have responded to the recession by focusing more on cutting costs and making progress toward profitability, Brookshire says it will take time for companies to show that change is working. said deaf.

“Last year there was little discussion of profitability [among IPO candidates]We can do a lot more now, but the problem with switching focus from growth talk to profit talk is that it takes time before issuers can prove their progress. ”

SVB’s Walsh added that a more positive factor prolonging the drought was the fact that tech companies raised so much private capital before the recession that they “don’t have the same sense of urgency.” rice field. He said he expected a “small group” of companies to try to go public again this year, but said most had already postponed their plans to 2023.