• Wednesday, May 22, 2024
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BusinessDay

Financial sponsor-backed IPOs drive activity close to 2010 levels

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Global IPO activity continues to climb with 851 IPOs raising $186.6 billion in the first nine months of the year, a 49 percent increase in volume and 94 percent increase in proceeds compared with the same period in 2013, according to the quarterly EY Global IPO Trends: 2014 Q3.

After a quiet August, in which some US-bound companies waited in anticipation of the Alibaba listing, the third quarter posted 260 IPOs, raising $67.1 billion, up 29 percent and 162 percent, respectively, on Q3’13.

Companies from a broad spread of industries continue to come to market. Year-to-date, the technology sector leads by capital raised with a total of $42.9 billion via 107 IPOs, driven by Alibaba’s record $25 billion listing. Healthcare has seen the most new listings with 148 IPOs representing 17.4 percent of global deal numbers, and energy and power and the financial sector both continue to perform well on both measures.

Financial sponsor-backed IPOs remain a key driver of activity, raising $105.3 billion in proceeds through 264 IPOs, which represents 56 percent and 31 percent of the global total, respectively. 2014 is now the best year for PE-backed IPOs since the turn of the century, with the first nine months of 2014 surpassing 2013 totals by capital raised.

Maria Pinelli, EY’s global vice chair of strategic growth markets, says: “A combination of good corporate earnings growth and a lack of alternative investment options mean that risk appetite is focused on equities – and IPOs in particular. As markets stabilize, innovation remains the key route to value and we are seeing a wave of innovation-led IPOs in the energy, health care and technology sectors.

“Global IPO activity this year could be the strongest since 2007, and the start of the financial crisis if macroeconomic conditions remain stable, financial sponsors continues to favor IPO exits and more Chinese listings materialise.”

US exchanges lead the way

Year-to-date, US exchanges have seen a total of 220 IPOs, raising $77 billion, an increase of 42 percent and 116 percent, respectively, on the first nine months of 2013. NASDAQ is the world’s busiest exchange by number of new listings, accounting for 16 percent of the global total. In terms of proceeds, NYSE takes top spot with $60 billion.

First-day returns picked up in the US in Q3’14 to 11.9 percent after a drop in the prior quarter to 10 percent. However, year-to-date average returns fell to 23.4 percent from 30.1 percent in Q2’14 and median deal size has dropped from $132 million in 2013 to $98 million.

Pinelli says: “The US is in the grip of a perfect storm – IPOs have outperformed the broader markets by around 15 percent to 21 percent so far this year. Stock indices continue to hit new highs and the pipeline of companies getting ready to list has rarely looked so robust, with representation from a range of sectors.

“Financial sponsors are pushing for exits and the pricing gap is at a historically low level, setting the stage for a rise in listings in the fourth quarter as investors rush for returns before the year-end. The only cautionary note is that as more companies come to market it is inevitable that there will be greater competition, resulting in downward pressure on after-market performance in the US and potentially other markets.”