Despite IPO slowdown, ‘the pipeline is still particularly strong’: LSEG Director

London Stock Exchange Group Head of Capital Markets Murray Roos joins Yahoo Finance Live to discuss the state of the IPO market and why he's still bullish on it despite its recent slowdown.

Video transcript

SEANA SMITH: All right, well, the IPO market plunging in this year as market volatility and higher rates puts investors on edge. For more on this, I want to bring in Murray Roos, group head of capital markets at the London Stock Exchange. Murray, it's great to have you. Lots of talk this year about the global slowdown that we're seeing in IPOs. What are you seeing firsthand?

MURRAY ROOS: Well, thank you. It's a pleasure to be here. Yes, certainly. After a very busy year last year, where we saw, certainly, the highest capital raised in IPOs for almost a decade, we have seen a big slowdown this year. My sense is the pipeline is still particularly strong, though. And whilst we're not seeing transactions happen to the same extent as they did last year in the first two quarters of this year, this is merely pushing it down the road a little bit, rather than having this canceled.

And there's a lot of volatility in the market, as you rightly said-- the war in Ukraine, the remnants of COVID, the supply side crisis. We have interest rates, inflation, has led to a period of uncertainty, which needs to be worked out before these stocks come back to the market. But I'm pretty confident that we will see this, in fact, happen.

RACHELLE AKUFFO: And as you mentioned, this means IPOs getting pushed sort of just further down the pipeline. Is that the same case, though, with SPACs? We saw they wiped out half their value as investors really sort of lost their appetite for some of these risky growth stocks. Do you expect that we'll still see more SPAC action going forward?

MURRAY ROOS: Well, I think we've seen a particularly busy market for SPACs over the last couple of years. And my sense is that we won't see that repeat itself in the coming months. I think SPACs remain a very valid capital raising tool for financial markets around the world. But when valuations do get as high as they have been over the last little while, we see them proliferate like they did. And then, inevitably, we do see some underperformance thereafter. And so I wouldn't say we'll see as much action from the SPAC market in the months to come.

SEANA SMITH: Right, there's been lots of talk about layoffs not only in the tech sector, which was kind of leading the way. Now the talk has shifted, or the focus, I should say, has shifted to Wall Street, as we've seen the number of IPOs stall, as we've seen the M&A activity kind of dry up. Is this something that you are seeing? And I guess, what kind of insight can you give us, just in terms of some of the layoffs that we could potentially see as a result?

MURRAY ROOS: Well, I think it's natural. As we see these periods of inflation, we see a lot of cost pressure in the system. We see some business activity decelerate, as a result of this, that there will be winners and losers. On the flip side, you also do see certain parts of the financial economy that will benefit from rising interest rates. And whilst the primary market side and the IPO side of the business is relatively lackluster at the moment, many of the businesses in the financial sector that benefit from transaction volumes are seeing a lot of good of good activity.

So I would hesitate to call in the financial sector a broad brush increase in layoffs coming, because I think that there will inevitably be winners and losers, depending on their particular niche. But, you know, clearly, you're right. As we do see consistent pricing pressure, and we do see interest rates start to take hold, it's very likely that we will see a slowdown in broader sectors, which will inevitably lead to layoffs.

RACHELLE AKUFFO: And we know that the Fed is obviously keeping more of an eye on what's happening with inflation and unemployment than it is on what's happening with equity markets. But when you look at what the European Central Bank is also trying to do to sort of battle inflation, and obviously, a more direct impact there on the economies because of Russia's invasion of Ukraine, what is that doing to market sentiment over there?

MURRAY ROOS: Well, I tell you, it's pretty similar to what we're seeing. We're all keeping at what we're seeing here in the US. We're all keeping our eyes very closely on interest rates as an indicator to what might happen to economic activity in the future. You're right. In Europe, there is another dimension, which is perhaps a little bit more of a direct effect from the war in Russia or the war in Ukraine. But I think that there's caution, which has led to a slight risk adversity that we've seen over the last little while. And I'd say that probably characterizes the sentiment at the moment.

SEANA SMITH: Murray Roos, great to have you. London Stock Exchange group head of capital markets, thanks so much for joining us.