EY Global IPO Trends
UK IPOs trading to expectation
There was a view late last year that investor interest could potentially taper for UK IPOs in 2014, given the significant fulfilling of demand in 2013. However, as yet this has not materialized. The majority of IPOs have comfortably filled their books and are trading to expectation.
Rising indices in a low inflation and low interest rate environment are continuing to drive strong investor support for UK equities.
The UK is performing well versus its global competitors
London Main Market ranked third globally by capital raised in 2014 Q1. Combining the amount raised in IPOs on the LSE and AIM exchanges in 2014 Q1, the UK ranks behind the US and Greater Chinese exchanges, accounting for 10% of global IPOs and 15% by global funds raised. This quarter, the London Main Market saw 8 listings which raised US$4.6b, which surpasses 2013 Q1 activity (5 deals which raised US$2.3b).
Strong investor appetite for Retail IPOs
Retail has been the dominant sector this quarter, representing 5 of the 8 London Main Market listings and 3 of the 16 AIM listings. 2014 Q1 saw more UK retail IPOs than in the last five years put together. Specifically, it is the low-cost retailers and those with a strong online presence that have successfully secured a listing.
The drivers for this move are two-fold: more consumer purchases than ever before are being made online and there is increasing demand for value-based retailers like Poundland.
PE driving UK IPO market
Forty-two percent of UK IPOs were PE- or VC-backed in 2014 Q1 and we believe PE and VC will continue to be a major market participant in 2014. EY’s Global private equity watch 2014 report shows that there are a significant number of UK companies that have been under PE ownership for over four years (the typical hold time).
Continued PE exits via IPO will be driven by a combination of need and opportunity. As major shareholders in many recent IPOs, PE sponsors have received a significant uptick in value from post-IPO trading and will want to perpetuate the trend in 2014 while the IPO window is open.
Outlook for the second half is good
2014 Q2 is expected to be one of the strongest quarters for the UK since the start of the global financial crisis. We anticipate businesses from a broad range of sectors to come to market that will be predominantly UK-based and PE-backed. In particular, natural resources IPOs may feature more strongly following a dry run in recent times and there are signs that in-bound, cross-border listings are starting to pick up.
We may also see more large deals, potentially from the financial services sector.