Megadeals and Unicorn IPOs Characterize 2018 Deal Landscape; Trend to Continue in 2019

Megadeals and Unicorn IPOs Characterize 2018 Deal Landscape; Trend to Continue in 2019

Megadeals and Unicorn IPOs Characterize 2018 Deal Landscape; Trend to Continue in 2019

The FINANCIAL -- Global IPO proceeds rose in 2018, supported by investor confidence, large pools of liquidity, strong valuations and low interest rates.

Year-to-date, 2018 has registered 1,359 IPOs with proceeds of US$204.8b – a 6% increase on proceeds despite a 21% decline in volume. The rise of unicorn-related IPO activity and mega IPOs were key factors in helping to push 2018 proceeds beyond 2017 levels. This trend is expected to continue into 2019, with the backlog of IPO candidates increasing and capital becoming more widely available. These and other findings were published last week in the EY quarterly report.

In terms of deal volume Asia-Pacific declined but still dominated with Americas and EMEIA accounting for a higher share of deal volume. The technology, industrials and health care sectors were the most prolific sectors by deal numbers in 2018, together accounting for 652 IPOs (48% of global IPO by deal numbers) and raising US$84.2b in total (41% of global proceeds).

Activity in Q4 2018 (326 IPOs and proceeds of US$53.7b) was 34% lower in deal volume and 10% lower by proceeds compared with Q4 2017. Market volatility and continued geopolitical uncertainty were contributing factors in a strong decline in quarter-over-quarter IPO activity in all regions during Q4 2018, signaling what is set to be a cautious start to 2019.

Americas IPO momentum sustained in 2018

With 261 IPOs raising US$60.0b, deal volumes and proceeds of Americas IPO markets in 2018 exceeded 2017 numbers by 14% and 16%, respectively. The US remained in the spotlight as the leading source of IPOs in 2018, accounting for 79% of Americas IPOs and 88% by proceeds.

Twenty-nine percent of US exchange IPOs were cross-border, with 60 companies from 15 countries choosing to list in the US during 2018, an increase from 24% in 2017.

Canada’s Toronto Stock Exchange and Venture Exchange saw 17 IPOs, which raised US$1.1b, accounting for 7% of Americas IPOs and 2% by proceeds, while 26 unicorn companies (raising a total of US$15.0b) came to the US public markets in 2018.

Asia-Pacific benefits from megadeals across the region

Asia-Pacific continued to dominate global IPO activity, accounting for six of the top ten exchanges globally by deal number and five of the top ten exchanges by proceeds. However, 2018 deal volumes (666 deals) were down by 31% versus 2017, while proceeds (US$97.1b) were up by 28% due to a number of mega IPOs in the region.

Japan posted 97 IPOs in 2018, a modest 2% increase in terms of volume compared to 2017, but representing a significant 333% increase over 2017 proceeds. This gain can be attributed to the US$21.1b listing of telecommunications giant SoftBank Corp. on the Tokyo Stock Exchange in mid-December – representing one of Japan’s largest ever IPOs – and also the listing of Japan’s first two unicorn IPOs.

New listing rules on weighted voting rights and pre-revenue biotech companies attracted high-profile technology and biotech companies to list in Hong Kong, with Hong Kong’s Main Market and Growth Enterprise Market seeing a rise of 24% by deal number (197 deals) and 120% by proceeds (US$35.4b) in 2018 compared with 2017.

In EMEIA, deal volumes (432) and proceeds (US$47.7b) were down in 2018. EMEIA’s 2018 IPO activity was 16% and 26% lower, respectively, than 2017 in terms of number of deals and proceeds, with geopolitical tensions having a clear impact on IPO activity.

Despite this, EMEIA exchanges remained strong as the world’s second largest IPO market providing two of the global top five megadeals in 2018, and contributing four unicorn IPOs (which raised US$2.7b). EMEIA increased global IPO market share with 32% of global deal numbers and 23% by proceeds in 2018. Moreover, EMEIA accounted for three of the top ten exchanges by proceeds (Germany, UK and India) and two by volume (India and NASDAQ OMX).

Main market IPOs that launched in 2018 posted first-day returns of nearly 10% and have outperformed most main market indices in 2018, solidifying investor confidence in the EMEIA IPO market.

2019 outlook: a cautious start will lift in second half of the year

Looking ahead, a number of uncertainties are likely to prevail in 2019. Trade tensions between the US, China and the EU; the outcome of Brexit; and uncertainty with respect to the stability of a number of European economies, are set to continue and ultimately determine overall IPO sentiment. At the same time, with interest rates expected to rise in the US, the European Central Bank may in time feel the pressure to follow suit, which will also influence IPO activity in the quarters to come.

While 2019 IPO deal numbers could be below those recorded in 2018, it is likely that global proceeds could meet or exceed high 2018 levels, particularly if a greater number of unicorn companies and more companies from the technology, industrials, consumer products and health care sectors come to the public capital markets in 2019, as expected. Cross-border activity is expected to maintain its momentum well into 2019, with the US, Hong Kong and London continuing to be the top destinations for IPO activity.