Global IPO window opens in Q2 as economy improves and mega-deals rise
- 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
London, 1 July 2013 – 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Q2 2013 saw a low postponement and withdrawals rate with 7 deals postponed and 24 withdrawn globally, compared to the same period last year, which saw 15 postponements and 71 withdrawals in Q2 2012.
Maria Pinelli, Ernst & Young’s Global Vice-Chair of Strategic Growth Markets 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. However, 89% of IPOs priced with or above filing range in Q2 2013, hence management team should remain cautious as pricing remains a critical concern for investors.”
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 H1 2013, the amount of capital raised was down 31% compared to H1 2012, but deal volume was up 8%. An additional of US$2.8b is expected to be raised from 14 IPOs if successful on US exchanges before the end of June.
“The pipeline of listings is strong, although average deal size is trending lower, in part because of the impact of the JOBS Act which means more smaller, emerging growth companies are taking advantage of confidential filing to raise capital on the public markets,” says Pinelli.
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. We are now waiting for smaller deals to come through, particularly in the more mature European markets,” says Pinelli.
Gary Schweitzer, IPO Leader for Russia and the CIS, comments: “In Russia, first of all, we are seeing a continued interest in technology companies listing in the US. Second, I expect to see more Russian companies with primary listings on the Moscow Exchange and it is not yet clear what impact that will have on the companies’ decisions as to the location for secondary listings, i.e., UK or US, and Third, there is still a hugh opportunity for the Russian Federation to strengthen the primary capital markets and expand domestic liquidity though the state privatization program.”
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.
“Although Asian volumes have recovered, we are not interpreting this as a bounce back, until China reopen their IPO market in second half of 2013 and asset value stabilize at previous robust level. 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,” says Maria Pinelli.
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).
Financial-backed deals are a presence on the markets
Jeffrey Bunder Ernst & Young’s Global PE IPO Leader comments, “Private Equity and/or Venture Capital-backed IPOs in Q2 2013 accounted for 24% of global IPO activity by deal numbers and 29% by capital raised. Over the last two quarters, the US was responsible for around 35% of all PE- backed IPOs, but this proportion rises to 70% for the larger deals (those with IPO proceeds above US$500m). PE and VC backers will continue to take advantage of improving market performance, generating good returns by taking their investees or portfolio companies public. There is a strong appetite among institutional investors for these IPOs as they offer the prospect of higher returns.”
Maria Pinelli 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.”
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 Footnote: Q2 2013-to-date would be 49% lower by capital raised than Q2 2012 if we included the Facebook’s US$16b IPO in May 2012.