Global IPO activity expected to pick up in second half 2013

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Tuesday 18 December — The global outlook for IPOs in 2013 is better but low business confidence and sentiment continues to cloud the picture for Australia.

EY’s Year End Global IPO Update shows that in the year to the end of November, there were 768 IPOs globally which raised US$118.5b, down 37% and 30% respectively compared to full year 2011.

However, Maria Pinelli, EY’s Global Vice Chair Strategic Growth Markets, says: “The US, Toronto, London, Frankfurt, and Moscow stock exchanges lifted significantly in the fourth quarter, thus suggesting that signs of stability in equity markets and supportive central bank policy are starting to take effect. We believe the market is likely to see smaller offerings initially while market and investor confidence builds.”

“Looking ahead to 2013, we expect a better outlook, with a strengthening US economy leading the recovery, followed in the latter half of the year by Europe and Asia. Reduced stock market volatility, assertive action from central banks and brighter economic prospects suggest 2013 could be the right time for companies currently in the pipeline to list.”

In Australia, there were 36 IPOs to the end of November with total capital raised US$865m – down 63% in volume and 29% in value compared to full year 2011, with no significant listings expected in December.

More than half the 36 capital raisings in Australia in 2012 were small resource companies with average capital raised less than US$10m and a single IPO – Woolworths’ spin-off of retail properties into the Shopping Centres Australasia Property Group – accounted for more than half the total capital raised for the year.

Anne-Maree Keane, EY Australia Transactions Partner, says the Australian equity market is in “relatively good shape” and is “on the up” but broader business confidence and sentiment continues to cloud the outlook for any increase in IPO activity.

“However there are more people looking for that IPO window. We have seen more interest from businesses in the past couple of months looking at a possible IPO later in 2013 and there is an appetite out there from investors for good businesses with solid fundamentals. The interest rate environment is also assisting as the debt/equity balance is starting to look right,” says Keane.

“A lot of private businesses have been waiting on the sidelines for some time now. For businesses that have a positive outlook, are generating good cash flow and have low gearing, then now may be the time to being preparing for a potential IPO in the second half of 2013.”

Q4 2012 sees improved activity in US and Europe

This quarter, the US markets raised US$7.3b (29 IPOs), narrowing the lead on the Asian markets, which raised US$8.8b (59 IPOs). European exchanges also saw something of a return to form, with deal value reaching US$7.0b (20 IPOs). Globally, year-on-year, the picture for Q4 remains somewhat depressed. The number of deals fell 46% from 255 deals in Q4 2011 to 136 deals in Q4 2012, whereas by capital raised, it only fell 6% from US$29.1b in the same period last year to US$27.3b this quarter.

Maria Pinelli says: “As expected, there has been lower IPO activity in Asia as the number of state owned enterprises (SOEs) coming to market has diminished. The fourth quarter figures show that the US IPO market is back by deal number and rewarding companies that perform strongly. Europe has significantly increased activity in the fourth quarter, compared to the rest of the year.”

Technology, financials and industrials were the most active sectors in 2012

Globally, the leading sectors by capital raised in 2012 were technology (US$23.2b via 112 deals), financials (US$18.0b via 46 deals) and industrials (US$17.2b via 112 deals). Energy and materials sectors also stood out by capital raised (ranked 4th and 5th). Pipeline data suggests these sectors should continue to drive activity in 2013.

Pinelli comments: “Looking ahead to 2013, we believe that the real estate sector is also set to be more active, due to increased investor interest ahead of a possible rebound in this sector. Oil and gas also looks set to become a more dynamic sector in the US and Europe. Other sectors to watch include infrastructure and healthcare, where investment is expected to occur.”

US stock exchanges ahead of Asia

The NYSE and NASDAQ exchanges raised US$44.9b in 128 deals, and NYSE raised 19% of global proceeds in 2012; leading the Shenzhen, Hong Kong and Shanghai stock exchanges (US$11.1b via 129 deals, US$9.8b via 44 deals, US$5.3b via 25 deals respectively) for a second consecutive year.

Pinelli says: “Market and investor confidence is building, the employment picture is improving and the housing market is seeing a return to form. Despite exceptional weather conditions, political uncertainty, a closed market for several days and concerns over the impact of the fiscal cliff, the US market is active.

“We are continuing to see companies sell smaller stakes (10% to 20%) for a longer term financing strategy, with the view to raise further capital with one or two follow-on offerings. We believe that Q1 2013 will start cautious, but we anticipate that by June 2013 we will be looking at a higher level of activity in the US and a strong pipeline of deals coming to market.”

Greater China IPO market taking a pause as confidence weakens

Activity in Greater China in 2012 tailed off as the three-year run of sales of large (SOEs) came to an end.

“The after-market in Greater China in particular has been depressed and across Asia investment confidence is weak with investors holding back” says Pinelli. “Although the Greater China market has seen signs of improvement in the past week – thanks to the People’s Insurance Co of China Ltd. raising US$3.1b, (the largest deal on HKEx this year) – Chinese and foreign companies into China are currently finding it difficult to complete their IPOs, as investors are showing signs of scepticism in this market.”

The Asian exchanges only completed 373 deals which raised US$47b, down 46% by capital raised compared to 2011 (610 IPOs, raising US$88b). Other active stock exchanges included, Bursa Malaysia, raising US$7.6b with three of the year top 20 deals, the HKEx (US$9.8b in 44 deals), and the Shanghai and Shenzhen Stock Exchanges (SME and ChiNext), raised US$16.4b in 154 deals in total.

European stock exchanges started picking-up

European exchanges saw a 63% decline in capital raised (US$11.1b raised in 139 IPOs) in the first 11 months of 2012, compared to 2011 full year (US$29.7 raised in 266 deals). However, the top three largest European IPOs so far this year all happened in Q4 2012. The London Stock Exchange raised the most capital (US$3.9b in 7 deals) with 57% of capital raised coming from Russian issuers. Deutsche Börse AG ranked second (US$2.4b in 11 deals) and Euronext ranked third (US$1.5b in 9 deals).

Pinelli comments: “While the European economic environment is still very difficult, confidence is starting to rebuild and many companies are now looking to plan an IPO in the second half of 2013. Recent IPOs, such as Telefonica Deutschland Holding AG and Direct Line Insurance have reinserted some confidence back in listings on the European exchanges.”

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Megan Ball
EY Australia
Tel: + 61 2 8295 6427