Accelerated Globalization Drives Record-Setting World IPO Markets, says Ernst & Young

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LONDON, 20 JUNE 2007 — Rapid globalization continues to propel global IPO markets to record levels as companies, investors and stock exchanges increasingly look outside domestic markets for high growth opportunities, according to Globalization, the fourth annual Global IPO Report released today by leading professional services provider Ernst & Young.

The report identifies the key IPO trends of the last 18 months that reflect the effects of globalization: flourishing stock markets awash in liquidity, vibrant growth in the emerging markets, escalating rivalry between the world’s stock exchanges, the boom in large listings on local exchanges, and the proliferation of alternative financing options, especially private equity’s emergence as a key player behind so many large IPOs.

“The availability of capital around the world and a surge in IPO-ready companies worldwide are rapidly changing the face of the world’s capital markets,” Greg Ericksen, Global Vice Chair, Strategic Growth Markets at Ernst & Young, said. “Eager investors seeking high-growth opportunities are heating up the fast-growing emerging markets, prompting the rise of more world-class financial centers as local exchanges become more liquid, stringent, and up-to-date—all of which has led to a sharp rise in large listings on local exchanges.”

As capital becomes more global, the vast majority of IPOs stay local, according to the report. Around the world, 90% of the world’s companies choose their primary place of listing in the market where they operate. The growth of local liquidity and international investor interest has enabled even the largest of companies to list at home.

“Most companies prefer to stay local for their IPOs since their customer base is usually local, and it is local investors who best understand their business,” Ericksen says. “For most companies, the local markets are where infrastructure, investors and liquidity can most easily be found, and where investor relations, regulatory frameworks, and market expectations are the most familiar.”

In 2006 the amount of capital raised worldwide by companies going public reached a record US$246 billion, up from US$167 billion the previous year. China’s companies raised the most capital at US$56.6 billion, followed by US companies with total proceeds of US$34.1 billion, and Russia’s companies with US$18 billion in funds raised. The number of listings was also up – to 1729, the highest number in a calendar year since 2000. The US launched the highest number of IPOs with 187 listings, followed by Japan with 185, and China with 175. The trend of very active IPO markets has continued in the first quarter of 2007 with US$36 billion being raised in 372 IPOs worldwide, an increase on the same quarter of last year in terms of both capital and the number of listings.

The emerging markets remain the wellspring of the world’s most vibrant growth stories, with China fuelling Asian markets, and Russia driving European markets. Combined IPO activity in the BRIC (Brazil, Russia, India and China) countries increased to US$86 billion in 2006, up from US$29 billion in 2005, while the number of listings almost doubled to 279.

“Super-sized IPOs from the emerging markets, especially privatizations in China and Russia, added substantially to the global amount of capital raised in 2006, accounting for almost half of the top 20 IPOs in value,” Ericksen notes. “Although relatively large companies are still going public in 2007, this year’s top IPOs have not been nearly as sizeable as last year’s mega deals. In the first quarter of 2007, the top three IPOs raised about US$2 billion each and the packed IPO pipelines indicate a diverse range of large, profitable companies ready to come to the market on the world’s exchanges in the months to come.”

Other key findings of the report include:

• The number of world-class financial centers increases as local exchanges from around the world hosted many of the top 20 IPOs in 2006—including South Korea, Japan, Italy, Switzerland, India, Germany, Netherlands, and France.
• The heated rivalry among the world’s exchanges for cross-border listings that led to the NYSE Euronext merger is likely to drive more alliances and mergers among world exchanges in the near future.
• Private equity firms have become key players in the IPO and M&A markets and de-equitizations or so-called ‘public-to-private’ transactions are an emerging global trend. Cash-loaded private equity firms are scooping up well-established public companies and taking them private again. The value of companies taken private in 2006 was US$150 billion—a new record and almost triple the amount in 2004.
• A trade sale through M&A is still viewed by many global companies as an appealing alternative to a traditional IPO. Last year, global M&A volume rose to an all-time high of US$3.8 trillion and the deal-making pace looks unlikely to slow down this year.
• Many of the larger overseas transactions are accessing US capital without a US listing—through Rule 144A deals, named after the US SEC rule that permits them. Specifically, Rule 144A applies to securities of domestic and foreign issuers that are not listed on a US securities exchange. Rule 144A was designed to improve liquidity and efficiency of private placement market by offering more freedom to institutional investors to trade restricted securities, and to encourage foreign companies to sell securities in the US capital markets.

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This press release has been issued by EYGM Limited, a member of the global Ernst & Young organization.