Global IPO activity continues to climb with 851 IPOs raising US$186.6b in the first nine months of the year, a 49% increase in volume and 94% increase in proceeds compared to the same period in 2013, according to the quarterly EY Global IPO Trends: 2014 Q3.
After a quiet August, in which some US-bound companies waited in anticipation of the Alibaba listing, the third quarter posted 260 IPOs, raising US$67.1b, up 29% and 162% respectively on Q3’13.
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Companies from a broad spread of industries continue to come to market. Year-to-date, the technology sector leads by capital raised with a total of US$42.9b via 107 IPOs, driven by Alibaba’s record US$25b listing. Health care has seen the most new listings with 148 IPOs representing 17.4% of global deal numbers, and energy and power and the financial sector both continue to perform well on both measures.
Financial sponsor-backed IPOs remain a key driver of activity, raising US$105.3b in proceeds through 264 IPOs, which represents 56% and 31% of the global total respectively. 2014 is now the best year for PE-backed IPOs since the turn of the century, with the first nine months of 2014 surpassing 2013 totals by capital raised.
Maria Pinelli, EY’s Global Vice Chair of Strategic Growth Markets, says:
"A combination of good corporate earnings growth and a lack of alternative investment options mean that risk appetite is focused on equities – and IPOs in particular. As markets stabilize, innovation remains the key route to value and we are seeing a wave of innovation-led IPOs in the energy, health care and technology sectors.
"Global IPO activity this year could be the strongest since 2007 and the start of the financial crisis if macroeconomic conditions remain stable, financial sponsors continues to favor IPO exits and more Chinese listings materialize."
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By GlobalDataUS exchanges lead the way
Year-to-date, US exchanges have seen a total of 220 IPOs raising US$77.0b, an increase of 42% and 116% respectively on the first nine months of 2013. NASDAQ is the world’s busiest exchange by number of new listings, accounting for 16% of the global total. In terms of proceeds, NYSE takes top spot with US$60.0b.
First-day returns picked up in the US in Q3’14 to 11.9% after a drop in the prior quarter to 10.0%. However, year-to-date average returns fell to 23.4% from 30.1% in Q2’14 and median deal size has dropped from US$132m in 2013 to US$98m.
Pinelli says:
"The US is in the grip of a perfect storm – IPOs have outperformed the broader markets by around 15% to 21% so far this year. Stock indices continue to hit new highs and the pipeline of companies getting ready to list has rarely looked so robust, with representation from a range of sectors. Financial sponsors are pushing for exits and the pricing gap is at a historically low level, setting the stage for a rise in listings in the fourth quarter as investors rush for returns before the year-end. The only cautionary note is that as more companies come to market it is inevitable that there will be greater competition, resulting in downward pressure on after-market performance in the US and potentially other markets."
Three-fold increase in European proceeds
Europe’s exchanges continued the upward trend in activity in Q3’14 that began in the first half of the year. Year-to-date, proceeds are up 316% with US$53.1b in capital raised through 211 new listings, compared to US$12.8b via 99 IPOs in the same period in 2013. London’s main market ranks second behind New York by capital raised for the first nine months of 2014 but Euronext was the star performer of Q3’14 by proceeds. Euronext raised US$2.5b via four IPOs, driven in part by the listing of PE-backed NN Group NV – the fourth largest deal globally for the quarter.
Pinelli says, "IPO activity in Europe continues to surge, led by a robust market in the UK and positive investor sentiment, buoyed by the recent European Central Bank intervention to increase liquidity and further improve financing conditions. Volatility indices are still at low levels, PE-backed investors are continuing to capitalize on strong valuations and reforms in developing markets are having a positive impact, and so the outlook is broadly optimistic – although we expect investors to be increasingly selective with regard to pricing."
Asia-Pacific sees most IPOs in 2014
There have been more IPOs on Asia-Pacific exchanges so far this year than in any other region, with 339 new listings compared to 215 IPOs in the same period in 2013. Proceeds are also up, with US$47.4b in capital raised in 2014 – a 51% year-on-year increase.
Hong Kong has been the busiest exchange in the region in 2014, with 64 IPOs raising US$16.7b. However, Australia, Tokyo and Shenzhen also rank in the top 10 by capital raised, accounting for 4.6%, 3.2% and 2.5% of global proceeds respectively. Consumer staples is the leading sector by proceeds, with 14.0% of the region’s capital raised, ahead of technology (12.5%) and energy and power (12.5%). The industrials sector has seen the highest number of IPOs with 56 deals, followed by technology with 43 listings.
Pinelli says,
"A consistently high number of companies are choosing to go public on exchanges right across Asia-Pacific. There is a wealth of options in terms of where to list, stock markets are performing strongly and growth prospects are good. Positive investor sentiment is translating into an abundance of liquidity in the first three quarters. This, combined with a robust pipeline of IPO-ready businesses, points to a healthy level of new listings through the remainder of 2014."
Strong finish expected to 2014
Pinelli says:
"Conditions are right for a very active final quarter of the year for IPOs across many exchanges, with companies continuing to come to market from a range of industries. Rising confidence means investors are becoming more daring – favoring the more innovative companies that offer higher risks and higher returns.
"This will likely be unsustainable in certain sectors and geographies. For example, recent health care IPOs in the US have been driven by a wave of less mature companies coming to market. As deal sizes are already getting smaller, the signs are that the pipeline will soon dry up in this sector.
"More broadly, M&A activity is now trending up once again, which reflects rising levels of business confidence and further evidence that the global economy is strengthening. As more capital comes into the system, we are seeing the return of multi-tracking as part of companies’ capital raising strategy and expect to see IPOs and M&A trending upward together through to the end of the year and into 2015."
