A wide range of investors think activity in equity capital markets will double in 2023 from the year before, when markets were beset by volatility, according to Goldman Sachs’ Annual Equity Capital Markets Investor Survey.
Approximately 40% of surveyed investors expect ECM issuance this year to resemble 2018, which saw nearly $260 billion activity. The survey, which took place in December, included hedge funds (51% of respondents), mutual funds (29%), family offices (11%), crossover funds (7%) and pensions (2%).
Lizzie Reed, global head of the Equity Capital Markets Syndicate Desk for Investment Banking in New York, says corporate management is also in relatively good cheer. “Issuers navigated 2022 quite well,” she says. “Despite the evolving macro, companies continue to perform, often supported by healthy balance sheets.” Because many companies are well capitalized, executives are being opportunistic when it comes to equity issuance, she says.
Looking ahead, investors expect technology, media and telecom (TMT), and healthcare firms to have the most compelling IPO prospects.
David Ludwig, global head of Equity Capital Markets for Investment Banking in New York, adds, “The IPO markets are open. The challenge for many companies looking to go public has been finding equilibrium with where buyers want to invest.”
Given the sharp decline in share prices and multiples in 2022, only 33% of investors who participated in the survey about the U.S. IPO cohort in 2021 believe those shares are overvalued. For IPOs that took place in 2021, most investors (53%) think current price levels reflect fair valuations. However by year-end, survey results indicated more mutual funds view the 2021 IPO cohort as undervalued.
There is reason to believe IPO activity will pick up this year, Reed says. The level of new issuance in the investment-grade corporate bond market is already strong, which usually precedes activity in riskier asset classes. The new issue market for high-yield debt is also getting more traction.
“The depth of the investment-grade market is a positive sign for the potential increase in equity capital markets activity,” Reed says.
In addition, Reed says 2023 is poised for increased convertible securities offering activity. Some 35% of investors in the equity market survey said they would participate in convertibles, private investment in public equity (PIPE) and private investments going forward.
In 2022, Goldman Sachs was the No.1 overall and lead-left bookrunner for convertibles for the third year in a row, increasing the firm’s lead versus the No. 2 bank by about 20% compared to 2021. “The convertible market is very open,” Reed says. “As investors become increasingly sophisticated in asset allocation, it’s our job to ensure we connect the dots and optimize.”