IPO Trends

What’s trending in IPOs?

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What companies and investors looking towards an IPO should watch out for in 2013.

After a slow start to 2012, momentum lifted in the second quarter, but significant macroeconomic volatility and changes in political leadership in many parts of the world, weighed on global IPO activity for the remainder of the year.

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.

We have identified seven trends that we see dominating the IPO market in 2013.

IPO Trends:

Trend 1: Investor confidence is strengthening

Confidence in IPOs is building. Greater interest from institutional investors is anticipated in 2013 – last year saw a four-fold increase globally in those investing in pre-IPO and IPO stocks. Read more.

Trend 2: Over-pricing will remain the biggest threat to a successful IPO

For companies looking to go public in 2013 – launching at the right price with the right team and the right story will be critical for success. Read more.

Trend 3: Domestic listings to dominate

Entrepreneurs considering an IPO, actively seek advice on the right listing place in many IPO readiness sessions. EMEIA issuers and exchanges are the most active in terms of cross-border listings. Read more.

Trend 4: Enduring appeal of financial services

In 2013, financial services listings have universal appeal for investors, attracted by the surge in demand for FS products and the continued take-up of innovative services. Read more.

Trend 5: PE and VC an important driver

PE- and VC-backed IPOs should increase in 2013. At 1Q13, there were more than 50 PE-backed deals in the pipeline, which could raise more than US$11.8b in total. In the US alone, at 1Q13 there were an estimated 60 PE-backed deals in the pipeline, worth US$12.3b. Read more.

Trend 6: Investors demand improved communication

Transparency is key. In 2013, investors will continue to demand regular, timely financial information before, during and after an IPO. Read more.

Trend 7: Investors' geographic preferences to remain constant

While IPO activity will vary by geography on a quarterly basis, in the medium term, investors' destination preferences will hold steady with 2013 seeing an uptick in activity in the US and Asia. Read more.

 



Trend 1 - Investor confidence is strengthening

Confidence in IPOs is building. Greater interest from institutional investors is anticipated in 2013 – last year saw a four-fold increase globally in those investing in pre-IPO and IPO stocks.

  • Institutional investors are extremely positive about IPOs. 82% of investors globally have invested in pre-IPO and IPO stocks in the past 12 months compared with only 18% in the past two to three years.
  • Investors believe the prospect of a brighter corporate earnings outlook, improving macro-economic conditions and more stable equity markets will be the key drivers of sustained positive market sentiment through 2013.
  • Higher appetite for IPOs will be most marked among larger institutional investors. As confidence returns, we are seeing a greater appetite for risk-bearing assets and institutional investors reallocating capital to equities.

Factors most likely to improve IPO market sentiment

Factors most likely to improve IPO market sentiment

Note: % represents the number of respondents that chose the particular factor as one of their top three choices.

"This dispels the myth that institutional investors do not support the IPO market. Our results show that sentiment is extremely positive." Maria Pinelli, Global IPO Leader.

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Trend 2 - Over-pricing will remain the biggest threat to a successful IPO

For companies looking to go public in 2013 – launching at the right price with the right team and the right story will be critical for success.

  • Investors are really clear about what they are looking for in a successful IPO in 2013. Good quality companies priced right, run by the right team and with a good story to tell will command the attention of the market, even when market windows are opening and closing fast.
  • Over-pricing and wrong management team are seen by 85% and 56% of investors respectively as the biggest threat to IPO success.
  • In deciding which deals to support, investors cite cash flow and valuation based on P/E, P/BV and other earnings ratios as the top two financial criteria by some margin. Of the non-financial factors, management credibility and experience is considered the most important, followed by market size and brand strength.

Key concerns for IPO candidates

Key concerns for IPO candidates

Note: % represents the number of respondents that chose the particular factor as one of their top three choices.

"For an equity story to be compelling, companies need to provide evidence that the business model has performed well in recent years and that there is a solid track record of growth and an actionable plan to sustain it." Jacqueline Kelley, Americas IPO Leader.

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Trend 3 - Domestic listings to dominate

With rapid growth markets perceived as both more risky and more expensive – especially by North American investors – in 2013 the majority of IPO investments will take place in home markets.

  •  European investors are most inclined to support an overseas listing, while those in North America are most likely to list at home.
  • In 1Q13 all of the 20 largest IPOs listed on domestic exchanges, a trend which is expected to persist over the next few years.
  • Investors see the most important challenge for companies going public abroad as complaints about corporate governance, followed by a lack of compelling reasons for listing overseas and a lack of management presence in the listing destination.

Main issues faced by companies conducting a cross-border IPO

Main issues faced by companies conducting a cross-border IPO

Note: % represents the number of respondents that chose the particular factor as one of their top three choices.

"Despite the current trend for domestic IPOs there are strong financial and strategic drivers for some companies to go public abroad. Macroeconomic and market conditions have an important bearing on trends in cross-border activity and a better environment in 2013 would pave the way for an increase in companies considering international listings." Dr. Martin Steinbach, EMEIA IPO Leader.

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Trend 4 - Enduring appeal of financial services

In 2013, financial services listings have universal appeal for investors, attracted by the surge in demand for FS products and the continued take-up of innovative services.

Financial services have universal appeal

  • Investors will support any sector where they can secure a strong return. Those enjoying particular interest in 2013 will include financial services, consumer industries – especially in Asia – oil and gas and technology. The mix is not expected to change significantly in the next five years.
  • The expanding middle class in emerging economies and the global ageing population are driving demand for FS products. This, combined with a rise in electronic payment services and software, as well as a notable rise in innovative services, is attracting investors' interest.
  • Over the next three years, mining and metals and oil and gas investments will become more popular, due to gradually improving macroeconomic conditions and the expectation that rapid-growth countries will continue to build their infrastructure and manufacturing capabilities.

Current investors’ portfolio weight by sector

Current investors' portfolio weight by sector

Note: % represents the number of respondents that chose the particular factor as one of their top three choices.

"In 2013, we expect continued IPO activity in the financial services, real estate, oil and gas, infrastructure and health care sectors. More smaller offerings from entrepreneurial companies will come to market as equity markets and investor sentiment continues to improve." Ringo Choi, Asia-Pacific IPO Leader.

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Trend 5 - PE and VC an important driver

PE- and VC-backed IPOs should increase in 2013. At 1Q13, there were more than 50 PE-backed deals in the pipeline, which could raise more than US$11.8b in total. In the US alone, at 1Q13 there were an estimated 60 PE-backed deals in the pipeline, worth US$12.3b.

  • The pipeline has been building for some time and there are compelling reasons for PE and VC firms to push the button on more listings in 2013.
  • Recent rapid improvement in investor sentiment combined with less market volatility and more compelling valuations suggests the window is opening for financial sponsor-backed IPOs.
  • An increasing need for liquidity should also start to drive activity higher. At the end of 2012, US venture funds had only 10 months of dry powder, suggesting that the balance between fundraising and investment is getting increasingly tight and that more IPOs may materialize in the coming months.

Perceptions that PE- and VC-backed IPOs

Perceptions that PE- and VC-backed IPOs

Note: % represents the number of respondents that chose the particular factor as one of their top three choices.

"The popular perception that PE- and VC-backed IPOs leave less value on the table for investors appears to be a myth. Just over 40% of institutional investors believe that PE/VC-backed IPOs are more expensive. This leaves around 60% who believe there is no discount or that PE/VC-backed IPOs are cheaper, implying higher returns for new investors." Maria Pinelli, Global IPO Leader.

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Trend 6 - PE and VC an important driver

Transparency is key. In 2013, investors will continue to demand regular, timely financial information before, during and after an IPO.

  • Communication is key prior to an IPO – a compelling equity story is a key driver of IPO success, alongside right team, right price and right time.
  • Post-IPO, nearly 60% of investors prefer to receive information on a quarterly basis to confirm or reframe expectations.
  • Reliable and regular reporting requires that companies develop an infrastructure of people, systems, policies and procedures that will enable the production of quarterly and annual reports in compliance with regulations and to meet investors' needs.

Investors' recommendations to companies post-IPO

Investors' recommendations to companies post-IPO

Note: % represents the number of respondents that chose the particular factor as one of their top three choices.

Across every territory and type of exchange, investors want good-quality, regular information. It's impossible to predict every event, but if a company delivers bad news or surprises investors it can suffer up to a 50% drop in market value and it can take up to three years to regain credibility in the public market." Maria Pinelli, Global IPO Leader.

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Trend 7 - Investors' top IPO destinations are the US, China and Brazil

While IPO activity will vary by geography on a quarterly basis, in the medium term, investors' destination preferences will hold steady with 2013 seeing an uptick in activity in the US and Asia.

  • Investors preferred markets are the US, China and Brazil. These priorities are unlikely to change in the next five years.
  • In the short term, strong momentum is expected for the US IPO market during the rest of 2013 after a positive showing in Q1, provided that stable macroeconomic conditions exist: a concern for investors. 
  • Activity in China will rebound following the resumption of IPO approvals after a six-month hiatus. Elsewhere in Asia, Singapore and Japan will build on solid listings in 1Q13, particularly in real estate investment trusts (REITs).

Investors' most preferred markets to invest

Investors' most preferred markets to invest

Note: % represents the number of respondents that chose the particular factor as one of their top three choices.

"Investors' preferences reflect a combination of interest in established equity capital markets as well as the pursuit of opportunities offered by rapid-growth markets. Investors' destination rankings are of course influenced by their location and preference to invest locally." Shinichiro Suzuki, Japan IPO Leader.

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