The FINANCIAL — Global IPO activity continues to strengthen. In 2014, 1,206 IPOs raised US$256.5b, a 35% increase in volume and a 50% increase in value compared to 2013, according to the report: EY Global IPO Trends: 2014 Q4. Although 2014 was the best year for IPOs since 2010 in terms of proceeds and volume, volatility on global stock markets in October meant Q4’14 failed to meet expectations, making 2014 a good, rather than a record-breaking year.
“2014 was a good year for global IPOs, but it fell short of being an epic one. The combination of low volatility for much of 2014, good corporate earnings growth and a lack of alternative investment options meant risk appetite focused on equities. IPOs performed very strongly, delivering on average a 17.1% return for the year, out-performing market indices by around 12.3%. 2014 was the best year for IPO performance since the financial crisis in 2007, even if IPO activity failed to reach pre-crisis heights in terms of deal number and capital raised due to a weaker-than-anticipated last quarter,” Maria Pinelli, EY’s Global Vice Chair of Strategic Growth Markets said.
Financial sponsors continued to play a dominant role in the global IPO market in 2014 as they took advantage of positive market sentiment, primarily in the US, mainland Europe and UK, to dispose of assets acquired in the peak of the economic cycle in 2006-07. At US$124.4b, proceeds raised via 328 financial-sponsored IPOs were up 86% on 2013 and accounted for nearly half (48%) of global IPOs by value and 27% by number – their best performance since 2001.
Cross-border deals were also a key driver of activity in 2014. At 129 IPOs, they accounted for 10.7% of all deals – the highest proportion since 2007. Fifty-two percent of cross-border listings were conducted on US exchanges, accounting for 23.3% of total US deal volume. Other significant destinations for foreign listings were London (with 22% of deals), Australia (9%), Singapore (4%), Germany (2%) and Hong Kong (1%). Although the US was the top destination in terms of deal numbers, mainland Chinese exchanges were dominant in terms of pricing and performance. Year-to-date returns averaged 133% over 2014, dwarfing performance in Hong Kong (4%), the UK Main Market (-0.3%) and US (27.8%), according to EY.
“The US has long been a magnet for foreign capital as it offers a well-developed market infrastructure, a knowledgeable analyst community and a deep pool of investors ready to pay for growth. However, companies may find it hard to overlook the price performance of companies listing on Asia-Pacific exchanges, which have typically seen such solid after-market performance that this is attracting an inflow of foreign capital and leading to an abundance of liquidity. It is possible these exchanges will mount a growing challenge in 2015 and beyond,” Pinelli said.
Strong cross-sector performance
Companies from a broad spread of industries continue to come to market: no sector individually accounts for more than 16% of IPOs globally. The top three in terms of deal number were health care (193 IPOs, 16% of global total), followed by technology (167 IPOs, 14%) and industrials (142 IPOs, 12%). In terms of capital raised, technology was the leading sector raising a total of US$50.2b, driven by proceeds from Alibaba’s record US$25b listing. Other strong performers were financials and energy, which raised US$39.9b and US$30.2b respectively.
“Taking the IPO route is a proven strategy for companies across a wide variety of sectors. Although some markets have a particularly strong affiliation for particular sectors, the key to unlocking value is for companies to come to market with a compelling value proposition that demonstrates how an IPO will help accelerate growth,” Pinelli said.
US leads by value, Asia-Pacific by volume
The US led IPO activity in terms of capital raised in 2014, where a total of 288 IPO listings raised US$95.2b. This is the highest number of US deals since 2004 and the highest level of capital raised in the last 15 years. The NASDAQ was the world’s busiest exchange by number of IPOs, accounting for 14% of the global total, while New York Stock Exchange led by capital raised (with 29% of global capital), even excluding the impact of the Alibaba deal.
Asia-Pacific led on deal volume, with 546 IPOs raising US$81.4 in 2014, due to a rejuvenated market in Japan, record levels of activity in Australia and New Zealand, and a steady flow of listings across China and South East Asia. With 353 IPOs raising US$74.9b, EMEIA ranked second by number of deals and third by proceeds worldwide, according to EY.
Expectations for 2015
With the IMF downgrading its global economic growth estimates, and market volatility expected to return, EY anticipates that 2015 may present a more challenging environment for global IPOs. Although the US and UK economies continue to gather momentum, prospects for the eurozone and many emerging markets are now more muted. Against this shifting global economic backdrop, EY anticipates deal volumes and values in Q1’15 will be on a par with the same quarter in 2014, raising around US$50b in capital. Over the course of the year EY believes economic fundamentals are likely to improve and that 2015 may finish slightly ahead of 2014, according to EY.
“We believe companies may be more cautious in 2015 and are likely to want to keep their options open – running an M&A strategy alongside IPO plans and carefully assessing which market may deliver best IPO pricing. Although this will be demanding on management time, it will help crystallize the business case for which route is likely to deliver optimum value for shareholders. From an investor perspective, the factors that will drive interest will be the right management team, coming to the market at the right time, offering stock at the right price, with a strong value proposition,” Pinelli said.
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