The global IPO market is off to "a very good start" this year, according to a recent Ernst & Young report. The first quarter of 2014 has been the best-performing first quarter since 2011 for both number of IPOs and capital raised.
Globally, the number of deals in the first quarter hit 239, a 47 percent year-over-year increase, at a total value of $44.3 billion, an 82 percent increase from the first quarter of 2013.
“With the MSCI World Equities Index reaching an all-time high in March and volatility, as measured by the VIX index, trending downward, investors’ confidence and appetite for IPOs is off the scale,” said Maria Pinelli, global vice chair of Strategic Growth Markets at Ernst & Young.
“As a consequence, average deal sizes are 24 percent higher than the same time last year, and six deals raised more than $1 billion.”
Rapid-growth markets made up 49 percent of these IPOs.
“Although economic fundamentals are less compelling in Asia, where the unwinding of U.S. tapering is causing repatriation of investments and the slowdown in Chinese manufacturing held Asian equity indices back, IPO performance was nevertheless strong,” Pinelli said in the report.
“With 110 IPOs raising $18.1 billion U.S. dollars in the first quarter of 2014, Asia-Pacific accounted for 47 percent by global deal number and 41 percent of global deal value. … IPO activity was relatively slower in the first quarter of 2014 for the Central and South America region, but this is expected to increase in the second half of 2014.”
Three sectors were particularly strong: energy, with 16 deals and $7.9 billion; technology, with 31 deals for $6.5 billion; and real estate, with 18 deals totaling $4.9 billion.
Most of these deals were facilitated by private equity or venture capital; 33 percent of global IPOs were PE or VC, and these means account for 72 percent of U.S. IPOs and 36 percent of European deals.
Nationally, the IPO market is booming, according to the Ernst & Young Global IPO Trends report for the quarter. Improving economic fundamentals, resurgent investor confidence, capital market strength and tapering of quantitative easing is creating something of a perfect storm.
Ernst & Young reports that the number of deals in the United States is up 113 percent year-over-year, with deal value up 36 percent. IPOs in the United States accounted for 29 percent of the global total, and 26 percent of value.
The report predicted this strong IPO market will persist, with continued momentum for health care and disruptive technology companies including cloud, SaaS, big data and social media — particularly those that offer revenue streams alongside advertising.
The market will continue to be dominated by more offerings with smaller deal size ($100 million or less in expected proceeds) while confidence rebuilds. A number of billion-dollar-plus deals, such as the listing of Chinese e-commerce companies Alibaba and JD.com, are also anticipated during 2014. New registrations are up 124 percent year over year.
While the United States posted strong numbers, Greater China registered more deals, at 66 compared to 59. The pipeline here is also promising, with 691 Chinese companies waiting to go public and no signs of investor appetite for new listings diminishing.
The Chinese government is expected to issue further regulations to strengthen the IPO process and protect individual investors’ interests, boding well for the long-term health of the A-share market and future IPO activity.
The report noted that Hong Kong may experience a slowdown in the second half of the year if investors’ appetite for risk is affected by market volatility resulting from U.S. tapering and lower-than-expected results from China’s manufacturing sector.
An up-and-comer in the market is the Europe, Middle East, India and Africa (EMEIA) space. With indices trending up — based on high valuation levels, low volatility and strong investor confidence after a broadly positive experience in 2013 — pressure to invest has rarely been as strong in recent years. EMEIA exchanges accounted for 24 percent of the global deal number and 33 percent by capital raised.
Ernst & Young expects the EMEIA pipeline to fill up rapidly in the second quarter. With valuations set by regulators in many Mideast and North Africa markets, post-IPO performance is robust.
United Arab Emirates and Saudi Arabia are expected to be active after their economic rebound, the ongoing institutionalization of family businesses and listing of state-owned entities that is driving public interest in share ownership.
Across the EMEIA region, Ernst & Young anticipates that retail, consumer products, health care and technology will continue to grab investor interest and deliver superior returns.
“Looking ahead toward prospects for the first half of 2014, we are optimistic that the growth in IPOs will be sustained,” Pinelli said. “The pipeline is extremely healthy with more than 1,000 companies registered around the world and a particularly strong run anticipated in Greater China, the U.S. and EMEIA.”