The Bank of England raise interest rates to the highest levels since March 2020. Chris Biggs, Partner, Theta Global Advisors discusses the rise in interest rates and the impact it could have on an IPO

Exploring the Immediate Impact of Rising Rates on IPOs

Interest rates have risen for the third time in four months as the Bank of England tries to soften the impact of the rise in the cost of living. With the rise (from 0.5% to 0.75%) representing the highest interest rates level since March 2020. The Bank of England citied the increase as a result of the cost of living and strong employment as the predominant reasons for the latest rate rise.

The rise is likely to affect the IPO market greatly – last year there were 1035 IPOs worldwide, which represented a new all-time record, with global IPO proceeds gaining a record $608bn as global IPO activity surged and valuations were pushed higher by strong investor appetite for equity. However, the raising interest rates could severely dent that appetite, thus having a significant impact on the amount of IPOs this year and could significantly hinder companies IPO plans. For a lot of the biggest names, an IPO still remains the main objective, with some major companies, including Reddit and TPG planning their public debuts for several years now, but it’s hard to predict if they will proceed with their listings if worldwide markets being to fade.

Companies are finding it harder than ever to retain top talent, adding to the full move back to the office being delayed further by the omicron variant, companies are facing a myriad of obstacles to overcome before considering an IPO.

The Bank of England warned that inflation is likely to intensify before it cools down, with surging inflation now predicted to rise to 8% in April, up from the central bank’s forecast of 7.25% last month and warned that inflation could climb several percentage points higher than its February projections in October, when households receive their gas bills, prompting the bank to raise its interest rate by 0.25 percent, with the bank’s interest rate rise being the third increase in a row in as many policy meetings.

Companies will need to continue planning in order to be correctly prepared to be able to respond to the appropriate market openings when those moments occur 

Chris Biggs, Partner at Theta Global Advisors commented, “The external factors which are happening all over the globe has led to further increases in energy and other commodity prices, including food prices. Global inflationary pressures will strengthen considerably further over the next few months and individuals must be prepared for the inevitable increase. Companies must be properly prepared and have an astute strategy in place if they are planning an IPO, they must be ready to take advantage whenever an opening in the market occurs. In 2022, there is a lot of uncertainty which continues to add pressure and focus to planning and more importantly, planning in advance.

“Moves must be made to counter growing inflation and the recent interest rates rise is a significant step to counter inflation rises. Global inflationary pressures will grow considerably over the next few months, whilst growth in economies that are energy importers is likely to slow. Companies must consider the rising interest rates in great detail before considering an IPO.”