25 Mar 2020
Sailing crew race in heavy rain and storm

How market volatility is placing IPO activity at risk in 2020

By Paul Go

EY Global IPO Leader

Leads Chinese and multinational companies in client servicing domain. Heads Hong Kong real estate, hospitality and construction sector audit group.

25 Mar 2020

Turbulent market activity in the first quarter of 2020 places major uncertainty on future listings.

What started as an optimistic year for global IPO activity quickly changed in the first quarter of 2020 owing to serious economic uncertainty and acute stock market volatility.

Investors’ growing concerns about the impact of COVID-19 and its impact on the global economy, coupled with an unforeseen drop in oil prices, have coalesced to produce market conditions not seen since the financial crisis more than a decade ago. In recent weeks equities have fallen sharply, corporate debt has come under extreme pressure and volatility benchmarks have soared.

With central banks worldwide slashing interest rates and revising down gross domestic product (GDP) forecasts, IPO candidates face an unprecedented period of uncertainty ahead. Our full IPO report provides deeper analysis and insights, including regional and country breakdowns, as well as all the data.

Sailing boat on open sea with clouds approaching image
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Chapter 1

Turmoil unravels across the global economy

The world is facing a perfect storm of macroeconomic, geopolitical and societal challenges.

It is now clear that the global economy will experience pronounced uncertainty for the foreseeable future. The impact of COVID-19 has reverberated across the world, leaving economies struggling to cope with disruption to the demand and supply of labor, goods and services. From factory shutdowns, to supply chain disruptions, labor force shortages and cash flow pressures, organizations worldwide are feeling the extensive shock of the outbreak. 

This extreme market volatility makes any ambitions to go public highly uncertain, both in terms of timing and valuation.
Paul Go
EY Global IPO Leader

With interest rates already low in many of the world’s biggest economies – and in the case of Europe below negative – central banks have little room left to lean on monetary policy to help soften the blow of the virus and stimulate the economy.

Instead, fiscal spending will likely serve as an immediate remedy to help stem near-term losses with targeted spending defined by each country’s immediate needs. 

The extraordinary set of circumstances facing companies today means that for many with the ambition to list in 2020, their IPO calendar will wholly depend on market conditions, and how they can manage their businesses in this current environment. For prospective IPO candidates choosing to hold out until sentiment improves, there are a number of steps that can be taken during this period of uncertainty to get their companies in the best shape possible before going to market.

This bout of volatility is an ideal time for companies to assess their business models. Companies can look at real-time worst-case scenarios and judge if their existing business models could withstand the same pressures facing public companies today.

Part of this assessment should concentrate on organizations’ capital expenditure, cash flow needs and human resources structure. Companies that take the necessary steps to spot any existing weaknesses will have more time to fix the issues and re-define their business models, thereby attracting greater investor appetite when the time is right.

While uncertainty reigns, companies must not lose sight of their ultimate goals and continue to focus on improving the creative foundation of their companies – and their underlying business models. Ultimately, this will help to propel their company’s growth and value in the future.

To get more insight into the steps companies need to take to maximize their chances of IPO success, download our Guide to Going Public (pdf).

The sailing course crew on the rippled sea photo
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Chapter 2

A quarter of two halves

Despite a strong start to 2020, the IPO market has since slowed significantly.

Macroeconomic uncertainty and distressed financial markets heavily impacted the Q1 2020 IPO landscape, dampening IPO deals and proceeds. Q1 2020 registered 235 IPOs with proceeds of US$28.5b. However, despite market volatility, Q1 2020 performance exceeded Q1 2019, with an 11% and 89% increase in both number of deals and proceeds, respectively, but this came from a relatively low base in 2019.  

Volatility looks set to remain

Market conditions are likely to remain erratic until at least the next quarter and not until the coronavirus subsides at a global level. 

There is a strong and building pipeline of companies ready to go public. They need to be ready to complete their transactions quickly to take advantage of narrow windows of opportunity that may open.

We expect market conditions to improve in Q4, probably more so after the US presidential election.  

Companies that still hope to list this year must remain vigilant of what government policies and stimulus measures are most likely to affect their sectors and businesses, and hence their IPO plans. 

  • Data definitions for all charts

    The data presented on this webpage and in the Global IPO trends: Q1 2020 report is from Dealogic and EY. Q1 2020 (i.e., 1 January–31 March) is based on priced IPOs as of 13 March 2020 and expected IPOs in March. Data is up to the close of business, 13 March 2020.

    • We focus on IPOs of operating companies and define an IPO as a company's first offering of equity to the public.
    • This report includes only those IPOs for which Dealogic and EY teams offer data regarding the first trade date (the first day on which the security start trading on a stock exchange), and proceeds (funds raised, including any over-allotment sold).
    • The first trade date determines which quarter a deal is attributed to. Postponed IPOs, or those that have not yet been priced, are therefore excluded. Over-the-counter (OTC) listings are also excluded.
    • In an attempt to exclude non-operating company IPOs such as trusts, funds and special purpose acquisition companies (SPACs), companies with the following Standard Industrial Classification (SIC) codes are excluded:
      • 6091: Financial companies that conduct trust, fiduciary and custody activities
      • 6371: Asset management companies such as health and welfare funds, pension funds and their third-party administration as well as other financial vehicles
      • 6722: Companies that are open-end investment funds
      • 6726: Companies that are other financial vehicles
      • 6732: Companies that are grant-making foundations
      • 6733: Asset management companies that deal with trusts, estates and agency accounts
      • 6799: Special purpose acquisition companies (SPACs)
  • Definitions for IPO performance by geography

    • Americas
      includes the United States, Canada, Argentina, Bermuda, Brazil, Chile, Colombia, Jamaica, Mexico and Peru.
    • Asia-Pacific
      includes Australia, Bangladesh, Greater China, Fiji, Indonesia, Japan, Laos, Malaysia, New Zealand, Papua New Guinea, Philippines, Singapore, South Korea, Sri Lanka, Thailand and Vietnam.
    • EMEIA
      includes Armenia, Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Ireland, Isle of Man, Italy, Kazakhstan, Luxembourg, Lithuania, Netherlands, Norway, Pakistan, Poland, Portugal, Russian Federation, Spain, Sweden, Switzerland, Turkey, Ukraine and United Kingdom, plus the Middle East and Africa countries listed below.
    • Africa
      includes Algeria, Botswana, Egypt, Ghana, Kenya, Madagascar, Malawi, Morocco, Namibia, Rwanda, South Africa, Tanzania, Tunisia, Uganda, Zambia and Zimbabwe.
    • Middle East
      includes Bahrain, Iran, Israel, Jordan, Kuwait, Oman, Qatar, Saudi Arabia, Syria, United Arab Emirates and Yemen.
  • Definitions for IPO deals – top stock exchanges

    We have used data from the main market and the junior market if applicable. The labels on the horizontal axis are the stock exchange tickers (see below for their full names):

    • ASX:
      Australian Securities Exchange
    • BM:
      Bursa Malaysia and junior markets, ACE Market and LEAP Market
    • HKEx:
      Hong Kong Stock Exchange Main Board and its junior market, Growth Enterprise Markets (GEM)
    • IDX:
      Indonesia Stock Exchange
    • SET:
      Stock Exchange of Thailand and junior market, Market for Alternative Investments (MAI)
    • SSE:
      Shanghai Stock Exchange and Science and Technology Innovation Board (STAR)
    • SZSE:
      Shenzhen Stock Exchange and junior market ChiNext
    • TSE:
      Tokyo Stock Exchange Main Market and junior markets, MOTHERS and JASDAQ
    Europe, Middle East, India and Africa
    • Indian:
      India’s National Stock Exchange and junior market, Small and Medium Enterprise (SME) board and Bombay Stock Exchange and junior market SME board
    • LSE:
      London Main Market and junior market, Alternative Investment Market (AIM)
    • NASDAQ Nordics:
      NASDAQ OMX Nordics Main Market and junior market, First North, based in Copenhagen, Helsinki, Stockholm and Riga
    • Tadawul:
      Saudi Arabia’s Tadawul and junior market Nomu
    • NASDAQ:
      US’s National Association of Securities Dealers Automated Quotations exchange
    • NYSE:
      US’s New York Stock Exchange
    • B3:
      Sao Paulo Stock Exchange
  • Definitions for IPO deals by sector and IPO proceeds by sector

    Sectors are classified according to Thomson general industries using a company’s Sector Industry Classification (SIC) code. There are 11 sectors, which are defined below with their specific industries. The 11 sectors are shown on the horizontal axis.

    • Consumer:
      the combination of “Consumer staples” and “Consumer products and services” sectors. Its specific industries include: agriculture and livestock, food and beverage, household and personal products, textiles and apparel, tobacco, educational services, employment services, home furnishings, legal services, other consumer products, professional services, as well as travel services 
    • Energy:
      includes the following specific industries: alternative energy sources, oil and gas, other energy and power, petrochemicals, pipelines, power, as well as water and waste management
    • Financials:
      includes the following specific industries: asset management, banks, brokerage, credit institutions, diversified financials, government sponsored enterprises, insurance, as well as other financials
    • Health care:
      includes the following specific industries: biotechnology, health care equipment and supplies, health care providers and services (HMOs), hospitals, as well as pharmaceuticals
    • Industrials:
      includes the following specific industries: aerospace and defense, automobiles and components, building/construction and engineering, machinery, other industrials, transportation, as well as infrastructure
    • Materials:
      includes the following specific industries: chemicals, construction materials, containers and packaging, metals and mining, other materials, as well as paper and forest products
    • Media and Entertainment:
      includes the following specific industries: advertising and marketing, broadcasting, cable, casino and gaming, hotels and lodging, motion pictures/ audio visual, other media and entertainment, publishing, as well as recreation and leisure
    • Real estate:
      includes the following specific industries: non-residential, other real estate, real estate management and development, as well as residential
    • Retail:
      includes the following specific industries: apparel retailing, automotive retailing, computers and electronics retailing, discount and department store retailing, food and beverage retailing, home improvement retailing, internet and catalog retailing, as well as other retailing
    • Technology:
      includes the following specific industries: computers and peripherals, electronics, internet software and services, IT consulting and services, other high technology, semiconductors, as well as software
    • Telecommunications:
      includes the following specific industries: other telecom, space and satellites, telecommunications equipment, telecommunications services, as well as wireless

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The year started with hopes for an IPO window of opportunity, but these were cut short by the impact of COVID-19.

About this article

By Paul Go

EY Global IPO Leader

Leads Chinese and multinational companies in client servicing domain. Heads Hong Kong real estate, hospitality and construction sector audit group.