The most recent data shows, global initial public offering (IPO) activity is cooling down, with lack of big private equity deals being blamed for the slowdown during the first part of the year. Although the second quarter has seen IPO numbers pick up a little, overall results suggest private equity-backed deals have continued to remain subdued.
The Latest Data
According to the quarterly EY Global IPO trend report, the second quarter of 2015 saw global IPO activity proceeds go up by 61% compared to the low levels of the first quarter. The deal numbers also picked up by 37% from figures the previous year.
Overall, the first half of the year has seen IPO deal numbers reach 631, which is a modest 6% increase to last year’s numbers. On the other hand, the total capital raised in these IPOs was down by 13% compared to 2014. Listings in the first part of the quarter have managed to raise $103.7 billion.
Interestingly, financial-sponsored IPOs are also witnessing declining figures. The first half of 2015 has seen 123 private equity and venture capital backed IPOs. In total, these deals have raised $32.7 billion. But the figures are down from last year’s figures by 38% and 48% respectively.
Instead of opting for the stock market, companies seem to be more focused on going after private equity-backed mergers and acquisitions. During April and May this year, the monthly M&A deal value achieved record-high numbers for the first time in eight years.
In April, 2,879 M&A deals were announced with the total value of $399 billion. In May the deal numbers dropped slightly to 2,653, but the total deal value for M&A deals went up to $400 billion.
According to the EY Global Vice Chair, Maria Pinelli, the data isn’t highlighting any specific lack of confidence in the markets, but rather “it reflects an ongoing pause for breath while entrepreneurs and managers evaluate the broad range of funding options currently available”.
Furthermore, Pinelli said, “Private capital is an attractive alternative to IPO, and there are now many more players looking to capture pre-IPO growth, from VCs, to hedge funds, growth capital investors and mutual funds.”
US IPOs Dropped the Most
The global low numbers in IPO activity were mostly influenced by the lack of listings in the US. The region saw its deal numbers drop by 36% during the first half of the year, with only 101 IPOs taking place in the country.
Furthermore, the deal proceed were also hit, as they declined by 45% from $35.4 billion in 2014 to $19.7 billion in 2015.
In fact, the US stock market, more specifically NASDAQ, has dropped down to the third busiest exchange, with China’s Shenzhen Stock Exchange and Shanghai Stock Exchange taking the first two spots.
Some of the drop in IPO numbers can be explained by the fact that the first half of 2014 was a record busy year for the US stock. It was the busiest year in listings since 2000.
IPO activity in the US has been the busiest in the healthcare sector, with technology listings lagging behind last year’s numbers. In the first half of 2014, the US witnessed 47 technology company listings, while the start of this year has seen only 15.
But analysts believe the US IPO activity might be about to pick up. Xconomy interviewed Kathleen Smith from Renaissance Capital, who said, “So far in June we have had 17 IPOs and we think another 17 will get done before the end of the month. That would mean 34 deals get done in June – more than last year and possible the busiest month since 2000.”
European IPO Confidence Drops
The European markets have also been under immense pressure and the uncertainty over Greece isn’t doing the IPO activity much favours. The UK markets have witnessed a slowdown as well, with proceeds dropping by 67%, whereas the average drop in Europe is 32%.
Furthermore, deal numbers are down by 27% in the whole of Europe, with the numbers declining in the UK by 51%.
According to Pinelli, “IPOs are likely to come under increasing scrutiny as an exit option as more companies take advantage of the buoyant M&A and private markets…We won’t know what the prospects are for the remainder of the year until this uncertainty reduces, something we’d expect to happen as the summer progresses.”
China’s Strong Performance
There is one region where IPO activity has been impressive in the first part of the year. The Chinese stock market boom has been able to attract 239 IPOs during the first six months. This is an increase of 132% to deal numbers last year.
Furthermore, the Greater China region has seen the IPO proceeds increase by 141%. Overall, the country accounts for 38% of global IPO deals and 38% of the global proceeds raised by the listings.
China’s strong performance has helped the Asia-Pacific region as a whole improve its first half IPO performance. As Chinese markets continue to open up, further investment is expected to flow into the region.
Lack of Financial-Sponsored IPOs
Overall, the number of industries opting for IPO has remained varied, with no one sector accounting for more than 20% of the global IPOs in 2015. The top three sectors include industrial with 19% of global IPOs, healthcare with 15% of global total and technology with 15% share of the total IPO numbers.
Industrials were also the sector that managed to raise the most money with IPO, followed by financials and energy. The total money raised in the IPOs stood at $19.4 billion for industrials, $18.6 billion for financials, and $10.3 billion for energy.
Financial-sponsored IPOs have been in the decline in 2015. Private equity and venture capital-backed listings account for just 32% of the global proceeds raised. In 2014, the financial-sponsored IPO accounted for over 50% of the proceeds.
Pirelli concluded the report by stating, “We believe that the amount of investment going into pre-IPO companies may change the IPO market in some sectors, with IPOs taking place when companies are bigger, more stable, and with more established business models that deliver the sequential quarterly growth that public market investors expect and reward.”
It will be interesting to see how the situation develops and whether private equity firms continue to prefer a sale instead of a listing as an exit alternative.