EY Global IPO Trends
Investors look for opportunity in EMEIA
Huge liquidity pools seeking above-inflation investment opportunities combined with a rising appetite for risk is feeding growing investor interest in equities and IPOs in EMEIA. With indices trending up based on high valuation levels, low volatility and strong investor confidence following a broadly positive experience in 2013, pressure to invest has rarely been as strong in recent years.
- Main markets IPO activity in 2014 Q1 is 19% higher by deal numbers and 91% higher by capital raised compared to 2013 Q1.
- EMEIA exchanges accounted for 24% of global deal number and 33% by capital raised.
- Nine of the global top 20 deals were listed on EMEIA exchanges.
UK and smaller deals dominate
Four of the top ten deals on EMEIA exchanges in 2014 Q1 were listed on London Main Market. There were two cross-border EMEIA listings which made the global top 20 IPOs in 2014 Q1: Russian hypermarket chain, Lenta Ltd., which listed on the London Main Market, and French telecom company Altice SA, which listed on the Amsterdam market of Euronext.
Financial sponsors seize the moment
Many PE and VC investors, keen to capitalize on improving market sentiment, are clearing their backlog and actively pushing out companies in 2014 to take advantage of the wide-open IPO window. They accounted for half of the top 10 deals in EMEIA in 2014 Q1 and 12 of the 24 larger IPOs with IPO proceeds in excess of US$100m.
IPOs help boost returns in a flat interest rate environment
In a historically and persistently low interest rate environment, investors’ appetite for greater risk is rising in a bid to find opportunities that deliver a higher return. This is feeding growing interest in equities and in IPO stocks in particular. With corporate performance strengthening, first day average returns up 1.2% in 2014 Q1 for financial sponsor backed IPOs and most of EMEIA IPOs were priced within or above the initial filing range, we anticipate continued investor support for equity markets and IPOs.
Investors favor household names
Industry performance has been broadly positive across sectors, but investors continue to favour technology companies and those with strong brand names. The lead sector by some margin in 2014 Q1 was retail, which saw two internet businesses – online clothing company boohoo and domestic electrical retailer, AO World, debut successfully on the back of strong market recognition. The media and entertainment sector also performed strongly in 2014 Q1.
Pipeline is strong and prospects are good
We expect the EMEIA pipeline to fill up rapidly in 2014 Q2. With valuations set by regulators in many MENA markets, post IPO performance is robust. UAE and Saudi Arabia are expected to be active following their economic rebound, the ongoing institutionalization of family businesses and listing of state-owned entities that is driving public interest in share ownership.
Across the EMEIA region, we anticipate that retail, consumer products, health care and technology will continue to grab investor interest and deliver superior returns.