Global IPO window opens in Q2 as economy improves and mega-deals rise

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  • Rising US confidence sees number and value of deals increase
  • Europe remains cautious, but pipeline is strong
  • Asia has 5 of top 10 IPO deals

Global IPO activity steadied in Q2 2013, with projected Q2 2013 IPO activity to achieve approximately 195 deals with IPO proceeds of around US$46.4b, according to Ernst Young’s Global IPO update. So far this quarter, there have been 151 IPO deals which raised US$34b. An additional 47 deals are scheduled before Q2’s end which should raise an additional US$12.5b if successful. The largest deal this quarter was Brazilian financial services company BB Seguridade Participacoes SA, which raised US$5b on BM&F BOVESPA. Globally, 9 of the top 10 deals raised over US$1b in Q2 2013.

Based on the projected Q2 2013 totals, Global IPO activity is expected to be up 92% in terms of deal value and increase by 27% in terms of deal numbers, compared to Q1 2013 (156 IPOs raising US$24.3b). For the first half (H1) of 2013, around 354 IPO listings are expected to raise US$70.7b (14% rise compared to US$61.8b in 2012 but a 21% drop (446 deals) by deal number, compared to same time period in 2012.

Q2 2013 saw a low postponement and withdrawals rate with 7 deals postponed and 24 withdrawn globally, compared to the same period last year, which saw 15 postponements and 71 withdrawals in Q2 2012.

Marc Guns, partner at Ernst & Young comments: “The IPO window is reopening thanks to rising equity markets and a wave of recent mega-deals, which is having an ice-breaker impact on the market. Combined with improved global monetary policy, market confidence is growing, particularly in the US, Japan, UK and parts of Latin America. These factors combined with a strong registration pipeline, suggesting a strong second half for the year.

US market performing strongly

In Q2 2013, US stock exchanges raised US$12b from 48 IPOs, accounting for 32% globally in terms of number of deals and 35% by capital raised. Capital raised was up nearly 40% compared to Q1 2013 (32 deals, US$8.6b). Q2 2013 was 65% higher than Q2 2012 (33 deals, US$23.2b raised) by capital raised if we exclude the Facebook listing. By deal volume, Q2 2013 saw 50% increase compared to Q1 2013 and 45% higher for Q2 2012.

In terms of industry sectors, financials, particularly insurance, performed strongly in Q2 2013, by capital raised. Healthcare, including life science and pharmaceutical companies, was also a prominent sector.

Europe remains cautious

In Q2 2013, European stock exchanges raised just US$2b from 27 IPOs accounting for only 6% of global capital raised this quarter. This was a drop of 63% in terms of capital raised compared to Q1 2013 (28 deals which raised US$5.1b altogether), but the number of deals was just 4% down compared to the prior quarter. However, in terms of the half year comparison, capital raised was up 82% compared to Jan-June 2012 (99 IPOs which raised US$3.8b), although deal numbers were down by 44%. A further five IPOs are expected to complete before the end of June, raising an additional US$2.3b if successful.

“While in the US these were large companies coming to market, in Europe by contrast it was more a question of large brands offering smaller volumes of shares. The return of large European deals such as LEG Immobilien AG US$1.6b in January and eSure Group plc US$1.1b IPO in March, have helped the European IPO market.,” says Marc Guns.

Asia recovering slowly

Deal activity in Asia continues to be impacted by the closure of Mainland Chinese exchanges to new listings since November 2012. This resulted in no new IPO activity on China exchanges in the first half of 2013. However, there was a total of 44 deals across Asia in Q2 2013 raising US$10.5b – accounting for 31% of global funds raised. An additional 20 IPOs to be completed before the end of June should raise an additional US$7.1b if successful.

Comparing the first half of 2013 (111 deals which raised US$16b) with the same period last year (209 deals, US$23.7b), the amount of capital raised decreased by 33% and deal numbers by 47%. Asian deals featured prominently in Q2 2013 top 10, accounting for 5 of the deals. The largest was the listing of BTS Rail Mass Transit Growth Infrastructure Fund in Thailand in April for US$2.1b, followed by Sinopec Engineering, which listed for US$1.8b in Hong Kong – priced at the bottom of its expected range. With proceeds of US$1.1b, China Galaxy also priced at the bottom of its range. The resurgence of the Japanese market was underlined by the flotation of Nomura Real Estate Master Fund Inc for US$1.7b on the Tokyo Stock Exchange.

“We are seeing an increase of IPO activity on Hong Kong and Japanese exchanges, as well as from emerging markets such as Thailand, Singapore, Malaysia and – to an extent – Indonesia, due to more positive sentiment. When China reopens their IPO market, a high volume of companies sitting in the pipeline will create positive momentum and sentiment positioning Asia favorably globally,” says Marc Guns.

Global IPOs by sectors

Financial services (FS) IPOs dominates the sector picture in Q2’13 in terms of funds raised –accounting for just under one-third (30%) of global activity (US$10.1b). This is not surprising given that 3 of the top 10 deals this quarter were FS. Industrials (20%, US$6.9b) and real estate (11%, US$3.7b) were also active by capital raised. In terms of number of deals, industrials is ranked first (17%, 25 deals), followed by FS (13%, 20 deals) and healthcare (13%, 20 deals).

Looking ahead

Marc Guns concludes, “We believe no single sector will clearly dominate globally in terms of the number of deals or amount of capital raised for the second half of the year. Sector diversity is good for the capital markets and for investors. It’s a sign that performance is improving across the board and it signals that a broader economic recovery is now getting under way. But pricing will be key – 91% of investors are concerned about attractive pricing – this is a top critical success factor influencing IPO success.”