The FINANCIAL — Entrepreneurial and investor confidence was challenged throughout 2016 by heightened political and economic uncertainty globally. As a result, the number of IPOs in 2016 fell 16% year-over-year (YOY) to 1,055 and capital raised was down by 33% to US$132.5b.
The volume of megadeals (IPOs with proceeds over US$1b) also fell from 35 in 2015 to 21. These and other findings were released on December 15 in the EY quarterly report, Global IPO Trends: 2016 Q4.
Dr. Martin Steinbach, EY Global and EMEIA IPO Leader, said:
“2016 was characterized by a number of unexpected geopolitical shocks. Although market sentiment held up this year against multiple setbacks, markets will likely remain under pressure in 2017 with lingering uncertainty surrounding the future make-up of the European Union, the new US presidential administration and concerns about slowdown in China’s growth rate.
“Despite these risks, the prospects for IPO activity in 2017 look much better, especially in the US where a sharp rebound in new listings can be expected. Financial sponsor-backed IPO activity fell in 2016 compared with 2015, so the combination of rising markets, reduced volatility and strong investor appetite to generate returns is likely to see more exits via this route in the coming year.”
Asia-Pacific dominates global IPO activity
Asia-Pacific was the epicenter of global IPO activity in 2016, accounting for 54% of global capital raised and 60% of IPOs by volume, marking the region’s third year of successive gain in share of global activity by deal number. A total of 638 IPOs raised US$71.5b, down 6% and 21% respectively on 2015, which had been driven by a standout first six months, especially from Greater China. Six of the top ten global IPOs took place on Asia-Pacific exchanges, with Greater China representing the engine room of regional IPO and the world’s most active IPO market in 2016, hosting 331 IPOs raising US$46.2b.
Ringo Choi, EY Asia-Pacific IPO Leader, said:
“The Hong Kong market performed robustly in 2016, though 2017 will be very unpredictable with factors like the interest cycle on an upward path, a strengthening US Market and new changes in government policies like the Shenzhen-Hong-Kong Connect Program. The IPO markets in Japan, Australia and South Korea were also active, buoyed by a number of blockbuster deals and various fiscal policies in promoting the local economy. By contrast, ASEAN IPO markets were muted in 2016.”
EMEIA sees divergence between developed and emerging markets
Despite increased activity in 4Q16, overall IPO activity for 2016 in EMEIA was down 25% YOY by deal volume to 285, while capital raised in 2016 fell 44% to US$37.7b compared with 2015. And while European exchanges fell 36% by deal volume and 49% by capital raised over the year, India and Africa performed very strongly. India’s exchanges made impressive gains, recording a 79% uptick in proceeds on a 38% increase in deal numbers (83 IPOs raising US$2.8b). African exchanges were not far behind, recording a leap in capital raised by 81%, albeit on the back of reduced deal volume (9 IPOs raising US$0.8b).
Steinbach commented: “2016 has been a stop-and-go year for IPOs in European markets. Globally, we are in a period of transition that has made risks harder to predict creating challenges for growth prospects. And while the pipeline is rebuilding, companies in 2017 will look to preserve transaction flexibility by retaining a multitrack funding strategy and keeping all paths open to funding innovation and growth.”
US IPO market poised for growth in 2017
This year was the slowest year for IPO activity since the global financial crisis in 2009. Compared with 2015, deal volume decreased by 36% with 112 IPOs, while capital raised was down 37% with US$21.3b. Financial sponsor-backed IPOs continue to drive the market, representing 56% of US new listings and 64% of proceeds in 2016. Companies that have come to public markets this year have performed well, currently trading on average 17.6% above their debut prices.
Jackie Kelley, EY Americas IPO Leader, said:
“There are a number of indicators that point to optimism in 2017. Private equity continues to provide a robust pipeline of strong deals. The backlog of tech companies is starting to make a debut. Unicorns are beginning to find a successful place in the public markets. This momentum, when matched with the stable, post-election markets, should lead to strong performance for IPOs in 2017.”
2017 outlook is upbeat, despite ongoing uncertainty
Despite many unexpected outcomes in 2016, the reaction to geopolitical events in the financial markets has been far more positive than many had predicted. Many equity markets have risen to new highs, volatility has fallen and trailing price/earning ratios are on a rising trajectory. Steinbach concludes: “2017 will see an uplift in global IPO volume and capital raised compared to 2016. At this point, however, it seems unlikely that the market next year will match the record levels of 2014 as some caution and uncertainty will remain across some markets. Overall, Asia-Pacific in 2017 will continue to be the engine room of global IPO activity, with stock exchanges in Greater China leading the way. The China Securities Regulatory Commission (CSRC) began speeding up IPO approvals in November, and we expect this to continue through the first half of 2017, supported by stable markets and a strong pipeline of IPO-ready companies.”