IPO market slows in 2018 on back of geopolitical uncertainty

09 May 2018 Authored by Consultancy.uk

IPO activity has been somewhat slow for the first quarter of 2018, in part on the back of market uncertainty at the start of the year. The Americas had a relatively strong showing, reflecting a number of mega-IPOs, such as PagSeguro Digital, which raised $2.3 billion, and ADT, which raised $1.5 billion. UK markets were relatively flat, something broadly blamed on the uncertainties companies face amid the Brexit process.

The global geopolitical situation which businesses must plan to operate within is increasingly uncertain, as threats of a trade wars, and a growing uncertainty around geopolitics in various regions, threaten supply chains and cross-border trade, along with the stability of consumer bases world-wide. According to a poll carried out at the turn of the year, political conflicts are the most often cited fear of executives, at 36% of respondents, followed by geopolitical instability, at 32%.

This trend seems to be being reflected in the IPO market now, as many firms enter wait-and-see mode, rather than risk an initial public offering amid a tumultuous economic and social period. Various stock markets have fallen into more turbulent trading, often as problematic geopolitical news unfolds. This was exemplified by the Dow industrials tumbling by more than 1,500 points at one juncture in February, the worst intraday fall in market history. The IPO market, which trades up investor interest, too saw the ups and downs in terms of activity – according to the latest edition of EY’s global report into the IPO market.

IPO activity markets and activity Q1 2018

In total there were 287 IPOs for the start of 2018, down 27% on the same period in 2017. The decrease, the firm notes, reflects market volatility, the start of February saw stiff selloffs on the market. The firm does note that the decline in volume was a comparison to the strongest year since 2007 in the IPO segment.

However, while the volume was down, the value was up by 28% to $42.8 billion. A number of mega-IPOs bumped up total value, including the $5.2 billion Siemens Healthineers public launch, the PagSequro Digital deal at $2.3 billion, and the DWS Group launch at $1.8 billion.

The authors elaborated, “Global growth in IPO proceeds outpaced deal numbers in a relatively strong first quarter. Driven by larger transactions, global IPO activity started out with a strong increase in proceeds in what is traditionally the slowest quarter of the year, despite a decline in deal numbers. However, market volatility in February did slightly dampen investor confidence, slowing momentum gained from calendar year 2017, the highest performing 12 month period since 2007. Looking ahead, the outlook remains positive in many markets around the world and we expect to continue to see IPOs from a range of sources including large tech, high growth, cross-border listings, carve-outs and state-owned enterprises.”

Regional share of IPOs by year and quarter for volume and value

The UK

The number of IPOs by region has remained relatively stable in terms of volume for the first quarter relative to all of 2017, with the Asia Pacific in pole position at 55%, while the Americas has floundered in recent years. However, the Americas has been bolstered by some of the biggest IPOs of the recent quarter – as a result the region accounted for 36% of deal value, up from 27% last year and 17% the year previous. The EMEIA meanwhile, accounted for 37% of value on its 30% of IPO share.

Brexit continues to dominate headlines, providing a headache for businesses and the government alike, as little progress is made during negotiations with the EU – leaving many having to second guess exactly what an appropriate strategy will be come 2019. Businesses came out of hibernation last year, with IPO levels returning to numbers seen in the boom years – when PE firms globally were shedding pre-crisis stock. This year has so far been a slow start on the London Main market, with three IPOs valued at $1.1 billion. The London AIM market saw five deals meanwhile, proceeds down 47% on the same time last year.

UK markets Q1 2018

IPOs in the financial services sector account for the largest number of total deals — two, while raising 51% of the region’s total proceeds. However, the low number of IPOs reflect market volatility at the start of the year, while PE-backed companies heading to exit stood at just one of the eight.

The Americas

The region saw considerable increase in total funds raised, with total value topping $12.5 billion on US markets across 36 IPOs. PagSeguro Digital, a Brazilian company, opened on the NYSE and raised $2.3 billion, while consumer product company ADT managed to raise $1.5 billion, also on the NYSE. The market saw first-day average returns of 9.6%, while share price performances across the US market stood at +18.9% on average.

IPO in the Americas Q1 2018 by activity

Healthcare was the most active segment on the US market, at nine total deals, while Energy and Technology took second and third place respectively, at six and four deals. While total deal volume was up, median deal value fell by 17% to $140.8 million, while median post-IPO market capitalisation stood at $538.1 million.

Related: IPOs in the UK rise as companies exit wait-and-see mode.

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