The FINANCIAL — After last year’s record-breaking level of activity, the volume of global IPOs in 2015 fell by 2% to 1,218 IPO listings and total capital raised declined by 25% to US$195.5b. However, despite falling short of 2014’s blockbuster year, these figures compare favorably to the 10-year annual global median of 1,241 deals raising US$176.1b, according to the quarterly EY Global IPO Trends: 2015 4Q. They also reflect divergent performance across regions in a higher volatility environment and the greater range of financing options now available.
Despite the closure of exchanges in Mainland China to new listings for part of the year, Asia-Pacific dominated 2015 IPO activity by number of IPOs and capital raised. It was also the only global region that improved on its 2014 performance.
Structural shift means multitrack is here to stay
2015 saw the proliferation of alternative private and corporate capital, which increased the number of funding choices for companies needing to scale quickly. Private equity “dry powder” (liquid assets set aside for investment purposes) is up 3% on 2014, at US$482.8b, and 2015 was a record year for M&A activity (the highest since 2007). This has impacted the number of technology companies listing – a sector that had been considered a mainstay of IPO activity, especially in the US. In the US, technology IPOs were 47% lower in 2015 by deal number and 27% lower by proceeds (excluding the impact of the Alibaba IPO in 2014). In the US, technology IPOs raised only US$8.1b through IPOs in 2015, compared with an estimated US$20b through private offerings1 in the first six months of 2015 alone.
Maria Pinelli, EY’s Global Vice Chair, Strategic Growth Markets, says:
“IPOs generally take at least two years to plan, but access to private capital is much quicker, enabling companies that need to scale rapidly the chance to lock-in the funding they need to generate competitive advantage sooner. With private investors prepared to invest greater amounts and at a later stage, we are seeing a structural shift in the market with multitrack fundraising strategies here to stay.
“As a consequence, we may see the balance shift in favor of a new kind of IPO, in which bigger, more stable businesses come to the public markets later in their life cycle, driven not only by funding needs, but also by strategic motivations, such as the desire to secure a higher brand profile and access to new markets via cross-border listing opportunities. Despite the abundance of private capital, the IPO market will remain the key exit route for financial sponsors.”
Asia-Pacific dominated in 2015
Asia-Pacific was the only region to improve on its 2014 performance with 673 deals raising US$90.2b, up 20% and 8% respectively on 2014. This positioned Asia-Pacific as the world’s leading region in 2015, accounting for 55% of global deal numbers and 46% of global capital raised. Seven of the world’s busiest exchanges by number of IPOs in 2015 were in Asia-Pacific, while four of the world’s busiest exchanges by IPO proceeds were also in this region, which accounted for 50% of top 10 global deals in 2015. Chinese exchanges re-opened to new listings in December with a strong pipeline of around 690 companies ready to go public.
Japan also saw a consistent level of deal activity across all four quarters in 2015. There were 98 IPOs – the highest number since 2007 – raising US$15.6b.
Pinelli says: “Activity in Asia-Pacific has largely been driven by the huge and ongoing demand to access the public markets in China. A range of economic headwinds, including uncertainty and volatility, low oil and commodity prices and exchange rate volatility ultimately failed to substantially impact the volume and value of IPOs across the region overall. With the outlook improving, we expect an uptick in new listings in 2016 with the pipeline already primed.”
Solid but not a stand-out year in EMEIA
2015 was a solid but not a stand-out year for IPOs in EMEIA, which came second in the global rankings both in terms of both IPO deal numbers and proceeds. At US$67.1b, capital raised was down 10% and the number of deals fell 5% to 346 IPOs. The year was marked by volatility, causing peaks and troughs of IPO activity, culminating in a very strong last quarter, which saw 69 IPOs, raising a total of US$24.0b in proceeds. This is 13% higher by deal volume and 389% rise by proceeds compared to 3Q15.
The strong proceeds seen in 4Q15 were largely caused by an increase in deal size, including six US$1b+ deals, raising in excess of US$15.9b, these deals accounted for 66% of capital raised on EMEIA exchanges in 4Q15. Four of these EMEIA IPOs were in the top 10 deals globally in 4Q15, while four listings also ranked in the top 10 global deals for the whole of 2015. These blockbuster deals fit into a longer term trend of increasing deal size on EMEIA main markets that moves counter to patterns seen elsewhere around the world.
“Much of Europe’s strength is attributable to the slow but steady economic recovery in the Eurozone. Loose monetary policy and an expectation that quantitative easing from the European Central Bank will continue into March 2017 and beyond look set to maintain investor confidence. The outstanding last quarter performance bodes well as we move into 2016,” Pinelli says.
US IPOs competing against private capital
2015 has been a challenging year for US IPOs, in large part due to the marked rise in the availability of private capital, which has diminished the number of technology IPOs. At 173, deal numbers were down 41% on 2014 with capital raised down 65% to US$33.3b, placing the US third in the global rankings in terms of IPO numbers and proceeds raised. However, deal numbers were only 5% below the 10-year median annual IPO deal number of 183 with the decline in capital reflecting the sharp decline in median deal sizes.
Despite the lower volumes, with volatility reducing, there is no shortage of buying interest in US IPOs. Although there has been some pressure on valuations, 66% of IPOs in the US priced within or above initial filing range in 2015. With average first-day returns of 16.9% for the year overall, newly listed companies are outperforming the broader market.
“2015 was a watershed year in the US with the abundance of private capital creating a real competitive challenge to the exchanges, many of which have responded by establishing their own private funding platforms. The JOBS Act has been pivotal too by raising the number of shareholders allowed from 500 to 2,000, which, at a stroke, enabled private companies to grow much bigger and delay the point at which they need to come to the public market.”
Prospects for 2016 improving
Economic fundamentals, volatility and monetary policy will all continue to have an impact on the IPO market in 2016, as Pinelli concludes: “With a stop-start year behind us, we expect something similar for 2016, although we’re cautiously optimistic the outlook could improve. The economic fundamentals are strong in most developed economies and any impending changes to monetary policy have been well signaled. With stock markets riding high and a lack of competition from other asset classes, investors remain keen to back equities as a source of potentially higher risk and return.
“Volatility, electoral uncertainty and the impact of geopolitical shocks will all impact the market in 2016, though we note with interest that IPOs seem to have been more resilient to volatility spikes this year than you’d expect, so it will be interesting to see if this continues in 2016.”