After several years of volatility, the global IPO market is showing signs of decline, prompting concern among investors and market analysts alike. According to Paolo Aimino, IPO and Capital Markets Leader at EY Italy, the market experienced 1,215 operations globally, marking a 10% decrease compared to 2023. Key factors contributing to this downturn include global economic uncertainty, increasing interest rates, and geopolitical tensions, which have negatively impacted investor confidence and capital availability.
2024 has been particularly challenging for the Italian IPO market as well, where the number of IPOs plummeted by 41%, with funds raised down by 87%. This reflects the shaky environment investors find themselves operating within, according to Aimino. Despite the lackluster results, the Italian stock market performed reasonably well, boasting a +12% return amid the turmoil.
While the global picture looks grim, India has emerged as the nation with the highest number of IPOs, surpassing both the United States and Europe. India registered approximately 330 companies on the market, raising $19.9 billion, representing remarkable growth rates of 36% and 150% from the previous year, respectively. Aimino attributes this to various factors, including strong domestic economic growth, favorable geopolitical conditions, and increased foreign direct investments. He explains, "India’s rapid rise is characterized by significant infrastructure needs and strategic policy initiatives, making it attractive for IPOs."
The sectors seeing the most significant IPO activity globally examined by Aimino include technology, media, telecommunications, and consumer goods, which collectively account for 60% of operations. Interestingly, the rising economic power of India has shifted some businesses away from reliance on China, redirecting manufacturing supply chains. This shift has contributed to India’s increasing presence on the global IPO stage.
Contrasting India's success, Aimino points to the tough IPO climate in mainland China, where regulatory constraints have drastically slowed domestic IPO activities. He states, "The Chinese authorities have intentionally reduced the pace of IPOs, focusing instead on high-growth candidates for potential listings, which may harm short-term needs for capital infusion. The trending delisting of companies, alongside decreasing IPO activity, signifies broader economic concerns."
The situation isn't limited to Asia. Europe faces declining attractiveness for new listings, with the Italian stock exchange experiencing greater delistings than new IPOs for the first time since 2012. Specific numbers reveal 28 companies left the exchange, whereas only 22 listed, resulting in a net decline of six public companies. This marked reduction has raised concerns among analysts about European competitiveness compared to the U.S., where indices like the S&P 500 and NASDAQ continue to thrive.
According to market data, the Euro STOXX 600 index reported a mere 6.1% increase, contrasting sharply with the 27% recorded by the S&P 500 and 35% by the NASDAQ Composite. This discrepancy has led to American companies showing significantly larger average capitalizations compared to their European counterparts; figures suggest U.S. companies had about 3.3 times larger valuations.
The issues plaguing European IPOs are multifaceted. Aimino emphasizes the disparity between trading volumes, noting U.S. markets averaged €288 billion per day compared to just €65 billion for Europe. Lack of liquidity hampers attractiveness for new companies considering going public, as investors gravitate toward more cash-rich environments.
Despite these headwinds, Aimino expresses cautious optimism about the coming years. He forecasts potentially improved conditions for 2025, subject to market recovery and investor sentiment rebounding. "The coming year may offer new opportunities as we observe improvements in the market," remarks Aimino. He encourages prospective IPO candidates to focus on solid compliance structures as preparation for going public.
Particularly notable is the performance of Italy's capital markets. While the total capital lost from the Italian Stock Exchange reached €28 billion due to delistings, the overall performance of the FTSE Italy All Share index recorded an 11.5% increase, indicating resilience amid external challenges. Still, for Italian mid-cap companies gearing for IPO, the Euronext Growth Milan (EGM) has been vibrant, showcasing 21 of the 22 new listings for 2024.
This positive news sheds light on the opportunities available for smaller businesses operating within the Euronext framework. According to Marco Ventoruzzo, president of AMF, the EGM's balance of regulation and flexibility stands as its key strength. The 171 million euro rise in the EGM’s capitalization firmly places it at the forefront of growth markets, significantly outpacing other European exchanges.
Even so, the EGM struggles with liquidity issues, having seen 74% of its companies register less than 0.1% of their market capitalization. This dire situation leads to negative returns of 9%, emphasizing the need for constructive regulatory reforms and investor engagement.
For Aimino and other experts, devising new strategies to recover Italy’s capital market is key. Regulatory simplification alongside enhanced opportunities for institutional investors like pension funds could address some of current challenges. The recent implementation of the Listing Act, which aims to cut down bureaucracy and improve voting options for founders, is seen as foundational progress toward revitalizing Europe’s financial competitiveness.
Overall, the global IPO market faces considerable hurdles compounded by geopolitical, economic, and regulatory factors. Yet, as new opportunities arise, investors and companies alike are channeling their efforts toward adaptation and recovery strategies. The roadmap for future growth will require innovation, resilience, and collaboration across borders to navigate through uncertain waters and revive the spirit of growth for capital markets.