Global IPO activity sluggish as companies deal with uncertainties

11 July 2016

Global IPO activity remains depressed as companies process uncertainties within the political and economic landscape. Overall, IPO activity this year has been relatively muted to that of last year, with 437 IPOs raising a total of $43 billion, a decrease of 38% and 61% respectively on the same period in 2015. The UK market too remains depressed, as companies deal with the uncertainties of Brexit. However, a recent analysis suggests that, when the uncertainty passes, a more robust IPO phase will begin.

In its latest Global IPO Trends report, which covers Q2 2016, EY explores the current themes affecting companies’ decision to go public, as well as the key trends and developments in the IPO market.

Political and economic uncertainty
Businesses, as with people, are affected by living in, or with, constant uncertainty. In general, political uncertainties are relatively short lived, with companies waiting out the period. In the meantime, companies will often hold off investment, or a move to IPO, until the chips are down. The global business environment remains relatively tense on the back of political conditions – from uncertainty surrounding the transformation of the Chinese economy to elections in the US and the recent move towards Brexit. Economic conditions too remain uncertain – as fears of a global economic slowdown, perceptions of high market valuations due to ultra-loose monetary policy and volatile capital market conditions undermine stability.

Global IPO and M&A trends

These, and other more granular uncertainties, have had impact on the IPO market. 1Q 2016 was the weakest since 2009. 2Q 2016 saw improvement, however, with a total of 246 IPOs raising US $29.6b, – representing a 29% rise in volume and a 120% increase in total capital raised compared to the previous quarter. Overall, however, IPO activity this year has been relatively muted to that of last year, with 437 IPOs raising a total of $43 billion, a decrease of 38% and 61% respectively on the same period in 2015.

Global IPOs
The Asia-Pacific region led in terms of deals for the first two quarters of 2016, taking 52% of the 437 IPOs, North America totalled 11% while the EMEIA region saw 36% of total deals. In terms of deal value however, the EMEIA region generated the most value, at 44% of the $43 billion total raised, this was followed by Asia-Pacific at 39.7% and North America at 16%.

Global IPO leaderboard

An analysis of the conditions surrounding IPOs finds that PE IPO exit activity has bounced back on muted activity in 1Q 2016, with 63 deals in the most recent quarter raising more than $10.4 billion and accounting for 26% of global IPOs by number and 35% by capital raised. The latest quarter also saw a number of mega deals, including DONG Energy in Denmark, which raised $2.5 billion, and MGM Growth Properties in the US, which raised $1.2 billion.

The research suggests that the rest of 2016, going into 2017, will see a relative pickup in IPO activity as uncertainties, such as the effects of a possible Brexit on global markets, as well as the US presidential election, subside. Additionally, investor appetite for well-valued businesses remains strong and IPO pipelines are healthy, which points to a pickup in IPO activity.

Commenting on the global IPO market, Jackie Kelley, EY Americas IPO Leader, says, “Despite the substantial uplift in global IPO activity in the second quarter, there are still a large number of IPO-ready companies sheltering from continued volatility and waiting for much needed clarity on the global economic and political landscape. In the meantime, activity is slow but improving. The ready supply of private capital from PE firms will continue to support this pipeline of larger, more mature businesses waiting for the right time to come to market, particularly in the US.”

UK market jitters
The UK market remains in a period of uncertainty, especially following the referendum results. 2Q 2016 saw a sluggish pace of IPOs – four IPOs on London Main market and 14 IPOs on AIM – raising just $1.1 billion compared to 2Q 15, when deal numbers were the same, but capital raised was 65% higher. Since the start of 2016 a total of 34 IPOs were performed on the London Main Market and AIM, raising $3.8 billion, down from 38 new listings with proceeds of $7.5 billion during the same period in 2015.

IPO across the UK

Companies that have listed this year, have managed to perform relatively well – given the circumstances. Newly listed stocks on the London Main market are currently trading on average 22% above offer price, with only 4 out of 11 stocks trading below their offer price. Meanwhile, new listings on London AIM are currently trading on average 16% above their offer price, with 3 out of 23 stocks trading below their offer price.

The research also considers the likely effect of the decision to leave the EU on the IPO landscape within the country. The analysts suggest that the market will see short term effects of a subdued market, as focus turns to smaller local companies with little overseas revenues – and therefore, fewer potential international trade issues. In the mid-term, activity is likely to pick up again as companies that decided a listing during 2016 was too risky, may decide the time is right to enter the public market. The weaker pound may also improve overseas investors’ appetite for UK companies.

Martin Steinbach, EY EMEIA IPO Leader, remarking on the wider EMEIA results, says that, “Despite the IPO market clearly being affected by uncertainty surrounding the UK’s EU referendum, EMEIA has performed strongly, especially when compared to other regions. While deal sizes are still lower than average, IPOs in the region are offering investors relatively healthy returns when compared to other indices. In addition, the strong rebound in financial sponsor-backed IPOs this quarter is a sign of increasing confidence. In this context we are still positive about the second half of the year as IPO-ready companies continue to take opportunities to come to market across the region. However, prolonged uncertainty in the UK following the EU referendum will clearly have an impact.”


8 tips for successfully buying or selling a distressed business

18 April 2019

Embarking on the sale of a business is one of the most challenging experiences a management team can undertake. Even serial dealmakers acknowledge that the transaction process can be gruelling, exposing management to a level of scrutiny and challenge through due diligence that can be distinctly uncomfortable.

So, to embark on a sale process when a business is in distress is twice as challenging. While management is urgently trying to keep the business afloat, they are simultaneously required to prepare it for scrutiny by potential acquirers. Tim Wainwright, an experienced Transactions Partner with Eight Advisory, says that this dual requirement means sellers of distressed businesses must focus on presenting their business in a way that supports buyers in identifying value, whilst simultaneously being open about the causes of distress. 

According to Wainwright, sellers of distressed businesses should focus on eight key aspects to ensure they are as well prepared as possible:

  • Cash: In a distressed situation cash truly is king. Accurate forecasting and day-by-day cash balances are often required to ensure any buyer is confident that scarce cash reserves are under proper control. 
  • Equity story and turnaround plan: Any buyer is going to want to understand the proposed turnaround strategy: how is the business going to enact its recovery and what value can be created that means the distressed business is worth saving? Clear presentation of this strategy is essential.
  • The business model: Clear demonstration of how the business model generates cash is required, with analysis that shows how financial performance will respond to key changes – whether these are positive improvements (e.g., increases in revenue) or emerging risks that further damage the business.  Demonstrating the business is resilient enough to cope with these changes can go a long way to assuring investors there is a viable future.
  • Management team: As outlined above, this is a challenging process. The management team are in it together and need to be consistent in presenting the turnaround. Above all, the team needs to be open about the underlying causes that resulted in the distressed situation arising.  A defensive management team who fail to acknowledge root causes of distress are unlikely to resolve the situation.

8 tips for successfully buying or selling a distressed business

  • Financing: More than in any traditional transaction, distressed businesses need to understand the impact on working capital. The distressed situation frequently results in costs rising as credit insurance becomes more difficult to obtain or as customers and suppliers reduce credit. Understanding how these unwind will be important to the potential investors.
  • Employees: Any restructuring programme can be difficult for employees. Maintaining open communications and respecting the need for consultation is the basic requirement. In successful turnarounds, employees are often deeply engaged in designing and developing solutions. Demonstrating a supportive, flexible employee base can often support the sale process.
  • Structuring: Understanding how to structure the business for the proposed acquisition can add significant value. Where possible, asset sales may be preferred, enabling buyers to move forward with limited liabilities. However, impacts on customers, employees and other stakeholders need to be considered.
  • Off balance sheet assets: In the course of selling a distressed business, additional attention is often given to communicating the value of items that may not be fully valued in the financial statements. Brands, intellectual property and historic tax losses are all examples of items that may be of significant value to a purchaser. Highlighting these aspects can make an acquisition more appealing.

“These eight focus areas can help to sell a distressed business and are important in reaching a successful outcome, but it should be noted that it will remain a challenging process,” Wainwright explains. 

With recent studies indicating that the valuation of distressed business is trending north. With increased appetite from buyers who are accustomed to taking on these situations, it is likely that more distressed deals will be seen in the coming months. “Preparing management teams as best as possible for delivering these will be key to ensuring these businesses can pass on to new owners who can hopefully drive the restructuring required to see these succeed,” Wainwright added.