Despite all the indicators suggesting uptrend in IPO activity is sustainable, investors are displaying a commendable level of caution in pricing deals
For the first time in over 10 years, Q2 '14 was the third consecutive quarter with more than 70 IPOs on U.S. exchanges, notes an EY report. Reflecting the trend, global IPO activity also continued to climb in the second quarter.
EY in its second quarter 2014 report titled: "EY Global IPO Trends" points out that investor confidence is being bolstered by the predominantly solid aftermarket performance of companies that have gone public.
Global IPO activity highlights
According to the EY report, after a bumper start with the strongest first quarter since 2011, global IPO activity continued to climb in the second quarter. As can be evidenced from the following graph, deal volume and proceeds reached the midpoint of the year at levels more than 60% higher than at the same time 12 months ago:
The report highlights that for the first time in over 10 years, the second quarter of 2014 was the third consecutive quarter with over 70 IPOs on U.S. exchanges. The NYSE and NASDAQ exchanges garnered a combined total of 162 IPOs, raising US$35.0 billion in capital in 1H '14.
As can be deduced from the following graph, EMEIA is back with a vengeance. On the main markets, deal numbers are up a substantial 97%, and capital raised has increased 243% compared to the first half of 2013:
The EY report points out that high levels of activity have been witnessed in the traditional UK and French hotspots spreading out to other mainland European exchanges, as the economic recovery takes hold. Moreover, listing activity in Middle East and Africa is also looking more optimistic following the successful performance of recent IPOs.
In reference to the Asia-Pacific market, the EY report notes the reopening of Mainland China's exchanges to new listings in January witnessed a rush of IPOs to propel the region to the top of the deal rankings in the first quarter. Moreover, the report points out that Australia is on track for its best year for IPOs in a decade.
Financial sponsors behind the resurgence
By analyzing the top 20 biggest deals of the first half of the year, the EY report highlights that six different industries are represented, viz.: financials, energy, technology, consumer products and services, media and entertainment and retail. The report notes 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.
As can be deduced from the following picture, in the U.S., the effect is even more pronounced, with PE-and VC-backed listings accounting for 64% of IPOs by number and 81% of proceeds:
Striking a positive note, the EY report concludes that the second half of 2014 is likely to be characterized by a period of normalization for the global IPO market. However, as a note of caution, the report points out that despite the increase in deals, pricing has come under pressure, suggesting investors are not prepared to invest in deals that are overvalued.