Renaissance Capital's 2014 Global IPO Annual Review

by: Renaissance Capital IPO Research

Bolstered by Alibaba, Global IPO Issuance Surges in 2014

Supported by stable equity returns, global IPO issuance reached the highest levels since 2010. Annual IPO proceeds increased 48.7% to $204.8 billion. North America was the largest contributor to IPO issuance with the United States accounting for 39% of global proceeds. Europe, the Middle East and Africa also experienced jumps in IPO proceeds after facing struggles in recent years due to sovereign debt concerns and economic instability, while IPO issuance in Latin America stagnated as Brazil entered an economic recession and political unrest dampened investor sentiment. Once again, financial companies raised more IPO proceeds than any other sector while the technology sector raised its highest level of annual proceeds ever, thanks to the mega IPO of China's largest e-commerce firm Alibaba Group Holdings (NYSE:BABA). Global IPO returns were also impressive in 2014; the average IPO generated a 15.0% return from their offer price. With issuance accelerating and returns strengthening, we expect to see global IPO markets continue to gain momentum and grow in 2015.

Key Takeaways:

• Global IPO activity reached highest levels since 2010

• North America leads in market share for the second consecutive year, bolstered by Alibaba

• Financial, Technology IPOs dominate sector issuance

• Global IPOs produce solid 15% average return

• Health Care leads 2014 sector returns with the most biotechs in history

• Global IPO pipeline has doubled from last year's levels

North America leads in market share for second consecutive year

North America's IPO proceeds increased 53% year over year, allowing for North America to outpace the Asia Pacific region in annual IPO proceeds for the second time since 2004. Issuance totals in the Asia Pacific region were impacted by the lack of IPOs in the traditionally hyperactive China A-Share market as the emerging country halted equity offerings early in the year and continues to develop its regulatory framework for stock market listings. European IPOs also rebounded this year after the region had spent much of the past two years disadvantaged by the lingering effects of the 2011 sovereign debt crisis. European IPO proceeds increased 32% from last year, while Middle East and African IPO proceeds increased more than 500% from last year's levels. IPO issuance in Latin America stagnated as Brazil entered an economic recession and political unrest dampened investor sentiment.

IPO listings were once again geographically diverse in 2014 as twenty-five different exchanges raised more than US$1 billion. Leading all exchanges was the New York Stock Exchange, which raised nearly US$64 billion and accounted for 31% of total global IPO proceeds. Exchanges in other developed markets also had strong issuance totals in 2014, including the Hong Kong Exchange, the London Stock Exchange, the Australian Exchange and the NASDAQ.

Financial, Technology IPOs dominate sector issuance

Financial IPOs accounted for nearly 31% of total IPO proceeds in 2014 and represented several of the largest offerings of the year, including the largest bank in the Arabian region National Commercial Bank (NCB.AB), Australia's largest private health insurer Medibank Private (MPL.AU), and Chinese commercial real estate spinoff Dalian Wanda Commercial Properties (3699.HK). Bolstered by the mega IPO of Alibaba Group Holdings, the Technology sector raised its highest proceeds total ever and accounted for 20% of total IPO proceeds this year.

Global IPOs produce solid 15% average return

Global IPO returns were enhanced by the strong performance of Asia Pacific IPOs, which averaged a 19.4% return from their respective offer prices. Leading Asian performers were Indonesian concrete builder PT Wijaya Karya Beton (WIKA.IJ; +467%), Chinese brokerage firm Central China Securities (1375.HK, +212%), and Chinese steel logistics company Guangdong Europol Steel (002711.CH; +169%). Middle Eastern and African IPO returns in 2014 were also strong, averaging a 29.8% return thanks to Egyptian cement production company Arabian Cement (ARCC.EY; +81%) and Africa's largest independent retirement fund administrator Alexander Forbes Group (AFH.SJ; +26%).

Health Care leads 2014 sector returns

Health Care IPOs demonstrated powerful returns in 2014, averaging a 43% return thanks to North American Health Care IPOs, such as gene therapy firm Avalanche Biotechnologies (AAVL) (+209%) and cancer immunotherapies developer Kite Pharma (NASDAQ:KITE) (+207%). International Health Care IPOs also fared very well in 2014, such as Chinese drug producer Porton Fine Chemicals (300363.CH; +86%) and Chinese specialty pharmaceutical company Luye Pharma Group (2186.HK; +52%). Several other sectors, including Materials, Capital Goods & Services, and Communications, all generated average returns greater than 20% this year. Energy was the only sector with negative IPO returns due to dramatic drops in oil prices.

US Biotechs and Asia Pacific make up Best Performers list while Energy and Tech IPOs struggle

Strong IPO returns were diversified across most exchanges in 2014. Asia Pacific and North America all had multiple top-ten performing IPOs. Indonesian concrete builder PT Wijaya Karya Beton (WIKA.IJ), Chinese brokerage firm Central China Securities (1375.HK) and gene therapy biotechnology firm Avalanche Biotechnologies (AAVL) were the top three performing IPOs of the year.

The ten worst-performing IPOs of 2014 are dominated by Energy and Technology IPOs. Weak energy IPOs included Seadrill-backed rig operator North Atlantic Drilling (NYSE:NADL) and Appalachian Basin exploration and production firm Eclipse Resources (NYSE:ECR), while poor-performing Technology IPOs included data center software provider A10 Networks (NYSE:ATEN) and Chinese developer of children's online games BAIOO Family Interactive (2100.HK). The worst-performing IPO of the year, however, was consumer company eDreams ODIGEO (EDR.SM). Formed by the consolidation of Spain's four largest travel agencies, eDreams ODIGEO finished the year down 86.5% from its offer price.

Global IPO Index lags broad benchmark index in 2014

The FTSE Renaissance Global IPO Index (IPOSG), a measure of post-IPO trading, slowed down from its exceptional 2013 pace and lagged global equity benchmarks with a 10% return (MSCI ACWI; 11.8%). The Financial and Consumer sectors were the index's strongest sectors, contributing 5.1% and 4.8% to overall index returns respectively. China's largest e-commerce firm Alibaba Group Holdings (BABA) (+60%), Pfizer animal health spinoff Zoetis (NYSE:ZTS) (+32%), and European cable TV provider Altice (ATC.NA) (+109%) were among the index's top contributing holdings.

Global IPO pipeline growing rapidly

With 447 companies seeking to raise a combined US$356.5 billion, our global IPO pipeline is growing rapidly and has increased in both number of companies and proceeds by nearly 100% since the end of 2013. As equity returns continue to advance, we expect IPO issuance to remain active in 2015. Notable companies expected to go public in 2014 include Brazilian poultry producer JBS Foods, European rental car agency Europcar, and Hong Kong broadband internet provider HKBN.