India among top six countries by deal volume

New Delhi, 31 March 2016

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  • Global IPO activity down 39% by volume and 70% by value on same period of 2015
  •   India ranks in the top six countries by deal volume globally; BSE featured in the top six exchanges by funds raised within EMEIA
  • Multifaceted, multitrack strategies now hardwired into process as companies explore other options or wait for confidence to return 
  • Deal sizes get smaller amid volatile market conditions

Global IPO activity slowed significantly in Q1 2016 with a total of 167 deals raising just US$12.1b according to the quarterly EY Global IPO Trends: 2016 1Q. This represents the weakest first quarter since 2009 with a 39% drop in volume and a 70% decline in total capital raised compared with the same period last year.

Fears of a global economic slowdown, increased volatility, falling oil prices and the current equity market turbulence have all contributed to the slow start to the year. Notably, weak activity was evident across the Americas, Asia-Pacific and EMIEA, unlike recent quarters when softness in some markets has been mitigated by better performance in other geographies.

While EMEIA sees a cautious start to 2016, however, UK, India and Sweden led the region with India ranking in the top six countries by deal volume globally. Also, BSE featured in the top six exchanges by funds raised within EMEIA, which amounted to US$197 mn from 8 deals.

Volatility leads to multitracking and a “wait and see” approach
With IPOs particularly sensitive to volatility and general negative economic sentiment, a wait and see approach and multitracking have predominated, as issuers wait for market conditions to improve or seek alternatives such as M&A which, while softening on 2015’s  stellar performance, is currently faring better than IPOs, with a less steep decline in activity.

Commenting on the global IPO market, Dr. Martin Steinbach, EY EMEIA IPO Leader, says:
“While global IPOs have got off to an extremely slow start, M&A is more active and private capital looks set for a busy year ahead, with options being trailed by companies as part of multitrack strategies proliferating. There has perhaps never been such an interesting or challenging time to generate value. In the current climate, both IPO-ready companies and potential investors are in effect sheltering from volatile, gloomy weather and waiting for the outlook to improve. This explains why there have been more postponed IPOs in the first quarter this year than last year, why deal sizes have fallen and why financial sponsors are biding their time for the exit environment to improve, which is always a sure sign that these sponsors think better times are ahead.”

This wait and see approach is evidenced by the fall in the proportion of private equity- and venture capital-backed IPOs globally (down 80% 1Q15 to 1Q16 by number of deals). Technology IPOs were also down compared to 1Q15 (24% worldwide in 1Q16), while in the US there were no IPOs in this sector in the first quarter, as technology companies and their pre-IPO investors wait to realize their valuation of a company at a later date. In addition, the 70% fall in global capital raised in 1Q16 shows that deal sizes are smaller (median deal size on main markets globally is down 30% year-on-year), with companies selling a smaller IPO in anticipation that a further offering can be made when the market improves.

Amit Khandelwal, National Director & Partner, Transaction Advisory Services, EY said: “The Indian IPO market witnessed strong traction in 2015 after a gap of nearly 4 years when 21 firms raised over US$2 bn. from the markets. A key aspect of the market in 2015 was the increased number of private equity backed firms successfully accessing the IPO market driven by the need for the companies to provide exit to the investors. The other key positive aspect was the re-emergence of large issues with the average size of the IPO getting close to US$100 mn, mark with nearly dozen companies raising over US$75 mn. The most active sectors during the year Life Science, Media, Consumer and infrastructure.”

Activity falls but Asia-Pacific remains the world’s busiest region
In Asia-Pacific, IPO volumes fell by 31% (102 deals) and capital raised by 55% (US$6.6b) in 1Q16 compared with 1Q15. Yet the region was still the most active, accounting for 61% of global IPO volumes.

Financial sponsors remain an important driver of IPOs in EMEIA
Capital raised also fell sharply in EMEIA, declining by 76% in 1Q16 (raising US$4.7b) compared with the same period last year, while deal numbers were down 43% at 51 IPOs. In contrast to other regions, PE- and VC-backed IPOs, although down on 2015 levels, remain an important driver of activity and accounted for 33% of capital raised and 10% of deal volumes in the first quarter, as the market continues to benefit from the European Central Bank’s (ECB) on-going monetary stimulus.

The London Main Market and AIM were the leading markets in the region for IPOs in 1Q16. They accounted for 47% of European listings and hosted two of the top five largest IPOs globally in 2016 as well-priced businesses, often backed by PE, continue to attract investor interest and deliver strong aftermarket performance.

Global IPO activity will improve as the year progresses
There are reasons to expect that the forthcoming quarters will show an improvement in activity. From an economic perspective, the US Federal Reserve is expected to moderate its interest rate hikes, while the ECB provided additional stimulus in early March. China, too, has eased monetary policy with a further cut in reserve requirement ratios and is likely to react to lower growth expectations with further supportive measures. The Chinese authorities are also formulating specific measures to support the IPO market, including a compensation regime, which aims to prevent IPO fraud. The future path of oil prices is hard to predict, but recent signs of stability, albeit at lower levels, should bolster investor sentiment.

Sharing his perspective regarding the  outlook for the Indian market, Amit Khandelwal, National Director & Partner, Transaction Advisory Services, EY said “2016 has already started on a positive note, with 6 IPO’s having raised ~US$375 mn. in the first quarter. A number of firms have already received SEBI approval and we could see successful IPO’s from some of these during the year. We expect the general sentiment for the IPO fund raise to remain positive for the rest of the year and closely track the general economic and investment environment. PE exits would continue to be the dominant theme in 2016. Divestment are expected to be another contributing factor to IPO market with the Government looking to list the profitable PSU’s, notably the insurance majors. Financial services (microfinance, payments banks), ITeS, Life Science and automotive are expected to be the more active sectors

- Ends -

Notes to editors

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About the data
Analysis included on this press release includes all deals listed up to 11 March and EY’s expectation of deals that will close in the rest of the month. Data sourced from Dealogic as of 11 March 2016.  January 2016 through March 2016 (i.e., 1Q16 YTD) IPO activity is based on priced IPOs as of 11 March and expected IPOs by the end of March. M&A data is sourced from Dealogic as of 16 March 2016.

Appendix: January 2016-March 2016 global IPOs by sector

Sector

Number of deals

% of global deal number

Proceeds (US$)

% of global capital raised

Consumer products and services

19

11.4%

$793.0

6.6%

Consumer staples

10

6.0%

$1,092.9

9.0%

Energy

8

4.8%

$223.7

1.8%

Financials

13

7.8%

$3,265.4

27.0%

Health care

29

17.4%

$1,410.8

11.7%

Technology

29

17.4%

$903.2

7.5%

Industrials

24

14.4%

$1,502.2

12.4%

Materials

15

9.0%

$408.6

3.4%

Media and entertainment

5

3.0%

$621.9

5.1%

Real estate

7

4.2%

$1,707.1

14.1%

Retail

5

3.0%

$19.3

0.2%

Telecommunications

3

1.8%

$156.1

1.3%

Global total

167

100.0%

$12,104.1

100.0%