Accounting firm Ernst & Young reports that global initial public offering (IPO) activity is down substantially this year. But it expects the market to pick up in the second half of 2013, driven by increasing U.S.-based deals.
So far this year, the amount of IPO capital raised globally is down by 30% at US$118.5 billion, it reports. And, the volume of deals is down even more, off by 37% (768 IPOs), compared to full year 2011, which saw 1,225 deals raising US$170 billion. The remainder of the year is expected to bring another 50 deals, with a combined value of around US$6.0 billion, it says, although this will still leave full year totals well down from the previous year.
“The weakening economy, unstable equity market conditions and poor performances on some IPO transactions undoubtedly impacted investors’ confidence,” said Maria Pinelli, Ernst & Young’s global vice chair strategic growth markets.
The firm reports that technology, financials and industrials were the most active sectors in 2012. The tech sector raised US$23.2 billion via 112 deals, financials generated US$18.0 billion in 46 deals, and industrials garnered US$17.2 billion on 112 deals. The energy and materials sectors also stood out by capital raised, ranking fourth and fifth, it says; and, it expects these sectors should continue to drive activity in 2013.
“Looking ahead to 2013, we believe that the real estate sector is also set to be more active, due to increased investor interest ahead of a possible rebound in this sector. Oil and gas also looks set to become a more dynamic sector in the U.S. and Europe. Other sectors to watch include infrastructure and healthcare, where investment is expected to occur,” Pinelli adds.
By venue, U.S. markets led the way in 2012. The NYSE and Nasdaq exchanges raised US$44.9 billion in 128 deals, with the NYSE raising 19% of global proceeds. This put New York ahead of the Shenzhen, Hong Kong and Shanghai stock exchanges, which raised US$11.1 billion via 129 deals, US$9.8 billion on 44 deals, and US$5.3 billion over 25 deals, respectively.
“Market and investor confidence is building, the employment picture is improving and the housing market is seeing a return to form. Despite exceptional weather conditions, political uncertainty, a closed market for several days and concerns over the impact of the fiscal cliff, the U.S. market is active,” she says.
Pinelli says that it is continuing to see companies sell smaller stakes (10% to 20%) for a longer term financing strategy, with the view to raise further capital with one or two follow-on offerings. “We believe that Q1 2013 will start cautious, but we anticipate that by June 2013 we will be looking at a higher level of activity in the US and a strong pipeline of deals coming to market,” she says.
China’s IPO market is taking a pause as confidence weakens, it notes. The Asian exchanges only completed 383 deals which raised US$51.5 billion, down 41% by capital raised compared to 2011, which saw 610 IPOs, raising US$88 billion.
European exchanges saw a 63% decline in capital raised, with US$11.1 billion raised in 147 IPOs, in the first 11 months of 2012, compared to the full year 2011’s US$29.7 billion raised in 266 deals. And, the three largest European IPOs so far this year all happened in the fourth quarter. The London Stock Exchange raised the most capital (US$3.9 billion in seven deals) with 57% of capital raised coming from Russian issuers. Deutsche Börse AG ranked second and Euronext ranked third.
“While the European economic environment is still very difficult, confidence is starting to rebuild and many companies are now looking to plan an IPO in the second half of 2013,” Pinelli suggests.
“Looking ahead to 2013, we expect a better outlook, with a strengthening U.S. economy leading the recovery, followed in the latter half of the year by Europe and Asia. Reduced stock market volatility, assertive action from central banks and brighter economic prospects suggest 2013 could be the right time for companies currently in the pipeline to list,” she concludes.
“The U.S., Toronto, London, Frankfurt, and Moscow stock exchanges lifted significantly in the fourth quarter, thus suggesting that signs of stability in equity markets and supportive central bank policy are starting to take effect. We believe the market is likely to see smaller offerings initially while market and investor confidence builds. As the global IPO marketplace ceases to be characterized by the sale of [state-owned enterprises], whichever economy provides the most effective support to commercial, entrepreneurial businesses will become the largest capital market in the world,” she adds.