Initial Public Offering market set for best IPO year since crisis

04 October 2017 Consultancy.uk

Mired in political and economic uncertainties, 2016 was a relatively lacklustre year for IPOs around the world. 2017, meanwhile, is off to a bumper start, already outperforming the whole of 2016 by the third quarter. Total deal activity increased by 59% to 1,150 IPOs, while deal value hit $127 billion. UK activity was up too, although Brexit concerns continue to weigh on investors.

The initial public offering (IPO) space has seen a period of relatively depressed activity, largely due to key geopolitical and political uncertainties in Europe, particularly Brexit, and the US, the presidential election result and interest rate hikes; as well as valuation concerns in the tech segment in the US, hitting investors’ confidence and slowing down IPO plans.

Activity may be returning to relatively higher levels, says a new report from EY, which covers IPOs for the year-to-date as well as wider sentiment driving activity. According to Martin Steinbach, EY Global and EMEIA IPO Leader, this could “...mark 2017 as the best year for global IPO performance since 2007.”

Headline IPO results to Q3 2017

IPO activity globally, has been robust so far, with the year-to-year result to date already surpassing the deal activity seen in 2016. So far, there have been more than 1,150 IPOs this year, which is a 59% increase on the same period last year. Total deal value, meanwhile, has seen a 55% increase, hitting almost $127 billion. M&A activity, meanwhile, is still somewhat lower than the 2016 result, although it is well on track to be a relatively strong year for the category.

In terms of the investment backing of IPOs for the year so far, financial sponsor-backed IPOs have continued to decline, with 9.5% of deals falling in the category so far this year, down from 27% in 2014. The total proceeds for financial sponsor-backed IPOs is a relatively robust portion of the total, at 26%.

Regional performance and trends

The regional mix was relatively similar to last year in terms of total activity, even while the absolute number of deals was up significantly. The Asia Pacific remains the most active, accounting for 60% of deals, followed by the EMEA and Americas on 28% and 12% respectively. The stark shift to activity in the Asia-Pacific region has plateaued after reaching 42% of total deal activity in 2013.

In terms of deal value, however, the Americas saw a considerable boost, up from 17% last year to 28% for the year-to-date, while the Asia-Pacific region has seen a relative decrease, from 54% last year to 43% this year

EMEIA activity

EMEIA

Europe has seen 320 companies go public so far with total proceeds in excess of $37 billion, an increase of 38% and 47% respectively since the same time last year. Financial sponsor-backed deals represent around 10% of total deal activity, down slightly from last year’s 15% result, and total deal proceeds from the segment comprised around 22% of total proceeds – slightly above and below the global average respectively. Median deal value was up 27% from last year, at around $88 million on the main markets, although the median post IPO market capitalisation saw a decline of 16% on last year to $234 million.

United Kingdom

The UK market saw a more modest 25% increase in deal activity, although total deal value jumped 112% to $8.8 billion. Both the London Main Market and London AIM saw increases, the former outshining its whole performance last year, while the latter being well on track to do so. Median deal size on the Main Market saw a decline of 19% from last year, to $172 million, while there was an increase of 12% to almost 20 million on the AIM.

UK activity

In line with similar trends globally and in the EMEIA region, financial sponsor-backed deal activity saw a significant decline, falling to 10%, from 24% last year and 35% in 2015. Commenting on the deal activity, Scott McCubbin, the EY UK and Ireland IPO Leader said, “The third quarter was very active with the financial services sector looking to take advantage of the regulatory stability currently available. There was also an increase in cross-border listings, indicating that the UK market’s attractiveness as a listing venue globally is on the rise. However, until we see the return of strong local main market listings, the UK IPO market’s full recovery is not assured.”

Outlook for 2017

The outlook for this year, the firm notes, is relatively robust. Total activity is set to hit 1,600 to 1,700 IPOs, raising $190 billion to $200 billion. Deal activity is bolstered, according to the firm, by ‘rallying markets, low volatility, strengthening investor sentiment and a healthy pipeline, minus any concerns emanating from the Korean Peninsula.’

EY IPO sentiment radar

For the UK, Brexit uncertainties will likely continue to impact IPO activity, although the relatively full pipeline is likely to see more companies go public on the Alternative Investment Market (AIM) and smaller London Main Market. In Europe more generally, continued strength is likely, although changes to the ECB’s liquidity may, create uncertainties.

Reflecting on the year ahead, Martin Steinbach EY Global and EMEIA IPO Leader, said, “At the nine-month point of the year, the global IPO market has continued to build strong momentum. Given the strengthening IPO sentiment with relative low volatility and valuations at high levels, we expect a yearend rally in the fourth quarter, traditionally the busiest IPO quarter of the year. Final numbers for 2017 could fall in the range of 1,600 to 1,700 IPOs and US$190b to US$200b in capital raised and this would mark 2017 as the best year for global IPO performance since 2007.”

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