[Edaily Marketin, Reporter JI YEONG-EUI ] While the workload for securities firms’ initial public offering (IPO) departments has decreased, their operational burdens and post-listing liabilities have grown significantly heavier. This is due to increasingly fierce competition for listings amid a decline in the number of potential candidates, coupled with the growing burden on lead underwriters—which now includes due diligence, responding to exchange reviews, and post-listing responsibilities for stock prices and disclosures. Securities firms, which had significantly expanded their workforces during the boom, have begun downsizing, and the exodus and movement of experienced staff are gaining momentum.

Decline in Listings Continues… “IPO,” the Fading Flower of Investment Banking

According to the investment banking (IB) industry and the Korea Exchange on the 29th,

the number of

new listings on the domestic stock market (including SPACs and KONEX) in the first half of this year totaled 27. This marks a continued decline compared to the first half of last year (40) and the first half of 2024 (53).

However, the decline in business volume has not led to less competition. As the pool of potential listing candidates has shrunk, multiple securities firms are now competing for even a single small- or mid-sized deal. Even if a securities firm accepts a deal while accepting lower commission rates, it is difficult to recoup the manpower and costs invested over several months if the public offering is withdrawn due to prolonged exchange reviews or deteriorating corporate performance. Industry observers note that for some securities firms, the IPO business alone is insufficient to reach the organization’s break-even point (BEP).

Securities firms successively expanded their IPO teams around the time of SK Biopharm’s 2020 listing, as a series of large-scale IPOs and listings by unicorn companies followed one after another. Their efforts to expand—such as recruiting external talent and establishing new departments—were driven by the expectation that the large-scale IPO market would continue to grow.

However, the conditions for listings—which had previously been driven by affiliates of large conglomerates and loss-making unicorns—have both changed. As investor backlash against duplicate listings intensified, conglomerate affiliates became more cautious about pursuing IPOs, and following rising interest rates, unprofitable unicorns have found it difficult to command the same high valuations as in the past. With the pool of large-scale IPO candidates that securities firms had anticipated shrinking, it has become increasingly difficult to maintain the organizational structures expanded during the boom period.

The practical challenges have actually increased. Lead underwriters must go beyond simply arranging the IPO and also take on a “consulting” role, bringing a company’s performance, corporate governance, and internal controls up to the standards required for listing. If stock price underperformance or accounting and disclosure issues arise after the listing, lead underwriters are often held responsible for inadequate due diligence or arranging an overvalued IPO.

In particular, excessive corporate valuations formed during the pre-IPO stage also pose a stumbling block. Setting the public offering price too high to meet the exit price of existing financial investors (FIs) limits the potential for share price appreciation after the IPO. This is seen as creating a vicious cycle that negatively impacts the pricing of subsequent deals and institutional demand forecasting.

Organizational Downsizing and Staff Shifts in Full Swing… Aftermath of Market Restructuring

As declining profitability and increasing workloads converge, personnel restructuring within the securities industry is also underway. Last year, Shinhan Investment & Securities downsized its IPO organization from three departments to two. It has recently been reported that Executive Directors Choi Hoon and Yang Geun-chang, both at the department head level, are set to move to Meritz Securities. Korea Investment & Securities also reduced its IPO department headcount early last year. In contrast, Meritz Securities, which is pursuing the strengthening of its traditional investment banking capabilities, is bolstering its organization by recruiting experienced professionals.

Industry observers view these personnel shifts not as issues specific to individual companies but as part of a restructuring process driven by changes in market conditions. Analysts note that IPO operations—once considered the “crown jewel of investment banking”—have transformed into a high-pressure business with low success rates and high risks of failure and accountability, making the retention of key personnel a major challenge.

An IPO industry official stated, “It is structurally difficult to maintain the workforce expanded during the boom period given the current market size,” adding, “While stricter review standards are a burden, the main cause is fundamentally the decline in the number of companies eligible for listing and in large deals themselves.” The official continued, “We are now in an era of bans on duplicate listings and rigorous scrutiny of corporate fundamentals, so the IPO market boom of the past is unlikely to return.”