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

The stock market downturn since the start of the year has caused the longest drought in US technology listings this century, with experts cautious about the pace of a revival even after tentative signs of life in other sectors. Wednesday will mark 238 days without a tech IPO worth more than $50mn, surpassing the previous records set in the aftermath of the 2008 financial crisis and the early 2000s dotcom crash, according to research by Morgan Stanley’s technology  equity capital markets team.The US stock market has been rocked this year by the Federal Reserve’s battle to bring down inflation through aggressive interest rate rises. Higher rates hit stock valuations by reducing the value of future earnings, and have sparked fears that the economy will be pushed into recession.

High-growth tech stocks dominated last year’s record-breaking IPO market and enjoyed some of the largest gains during the stock market boom, but they have also been disproportionately hit by this year’s sell-off.The tech-dominated Nasdaq Composite has fallen nearly 28 per cent this year compared with a drop of just over 19 per cent in the S&P 500, while the Renaissance IPO index, which tracks US companies that listed in the past two years, is down more than 45 per cent.“There’s a tremendous amount of uncertainty in the market right now, and uncertainty is the enemy of the IPO market,” said Matt Walsh, head of tech equity capital markets at SVB Securities.“I think we’ll need to see some stabilisation in the outlook and investors stepping back in to buy existing public securities before they’re willing to move further out on the risk curve and buy tech IPOs.”

Life insurer Corebridge last week completed the first $1bn US IPO since January, and the cautious early reception highlighted investor wariness even for more well-established and profitable businesses. Even after the Corebridge deal, overall US IPO volumes are down 94 per cent year on year, with just $7bn raised so far in 2022 compared with $110bn in the same period last year, according to Dealogic data. Corebridge was being closely watched as a sign of investor appetite for more deals. But Nicole Brookshire, a partner at law firm Davis Polk who specialises in tech listings, said other factors such as weak earnings reports could have “more of an outsized impact” on the prospects for new tech issuers.

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