EY Global IPO Trends Report (Q2 2014)

1. EY Global IPO Trends (Q2-2014)

Global IPO markets show strength and increased stability
After a bumper start to the year with the strongest first quarter since 2011, global IPO activity continued to climb in the second quarter. Deal volume and proceeds reached the midpoint of the year at levels more than 60% higher than at the same time 12 months ago, with expectation of more to come in the second half of 2014.

Stock indices around the world are trending higher, levels of volatility are low and economic indicators are encouraging. Investor confidence has been further bolstered by the predominantly solid aftermarket performance of companies that have gone public and the robust pipeline of IPO-ready businesses, indicating that there will be no shortage of opportunities in the remainder of 2014.

Solid performance across all regions
The story of 2014 so far has been the uptick in IPO activity in almost all major markets. For the first time in more than 10 years, Q2’14 was the third consecutive quarter with more than 70 IPOs on US exchanges, marking a standout first half of the year (H1’14). NYSE and NASDAQ accounted for a combined total of 162 IPOs raising US$35.0b in capital in H1’14, including seven deals that broke the US$1b barrier. EMEIA is back with a vengeance. On the main markets, deal numbers are up 97%, and capital raised has increased 243% compared to the first half of 2013 (H1’13). In H1’14, we are seeing high levels of activity in the traditional UK and French hotspots, but this is spreading out to other mainland European exchanges as the economic recovery takes hold.

Meanwhile, Asia-Pacific saw more IPOs in the first half of 2014 than any other region. Four of the 20 largest IPOs in the period took place on Asian exchanges — three IPOs on the Hong Kong Stock Exchange and one on the Tokyo Stock Exchange. The reopening of Mainland China’s exchanges to new listings provided a welcomed boost to the region’s activity level. With a further 100 Chinese companies now expected to list in this year and deal activity across a range of markets in the region, including Hong Kong, Japan and Australia, the mood is one of optimism for the second half of the year.

Activity across multiple sectors, with financial sponsors a key driver
A look at the top 20 biggest deals of the first half of the year reveals that six different industries are represented: financials, energy, technology, consumer products and services, media and entertainment, and retail. While this highlights investors’ willingness to consider opportunities regardless of sector, it also underlines the key role of private equity (PE) and venture capital (VC). Financial sponsor-backed exits in EMEIA have been a critical factor in the resurgence of IPO activity, accounting for 25% of deals by volume and 51% of capital raised in the first half of 2014. In the US, the effect is even more pronounced: PE- and VC-backed listings accounted for 64% of IPOs by number and 81% of proceeds, including nine out of 10 of the largest listings in the period.

Prospects are bright
The second half of 2014 is likely to be characterized by a period of normalization for the global IPO market. All the indicators are that the upward trend in activity is sustainable. However, despite the increase in deals, pricing has come under pressure, suggesting that investors are displaying a savvy and commendable level of caution. They are not prepared to invest in deals that are overvalued, which means that now more than ever those companies that come to market at the right time with the right growth story will attract investor interest only if they are prepared to ask the right price.

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