US PE-backed listings drove global IPO activity in the first quarter of 2011, with the New York Stock Exchange (NYSE) taking the lead among world exchanges for the first time in two years. While the US exchanges began closing the gap on Chinese IPO dominance (32%), the Greater Chinese exchanges raised more than a third of total capital raised (37%) globally. The last few weeks of the quarter saw choppy stock markets spiked by the Japanese disaster and Middle East political unrest, which slowed down the overall pace of global IPO activity, particularly in EMEIA, according to Ernst & Young’s Q1 2011 Global IPO update.
In the first three months of the year, global IPO activity saw 290 deals worth US$46.1 billion, down 14% by capital raised, compared to the same period last year. For the first time since 2008, the NYSE took the lead among world exchanges, raising US$13.8b (29.8%) of the total capital, followed by the US$11.2b (24.3%) capital raised on the Shenzhen Stock Exchange, (US$5.6b), Singapore (12.2%), and (US$4.5b), Shanghai (9.8%).
“In the first quarter of 2011, the NYSE was the leader among world exchanges for IPOs, due largely to an increase in number of PE-backed offerings and an improving US economic outlook,” says Terence Ho, Greater China Strategic Growth Markets Leader for Ernst & Young.
Asia Continues to Lead
Mainland China and Hong Kong issuers continued to lead global IPO activity with 110 deals (accounting for 38% of total deals globally); valued at US$18.3b (52% of global fund raised). The largest global IPO in Q1 was the US$5.5b Singapore listing of Hong-Kong based transportation conglomerate, Hutchison Port Holdings Trust, reflecting an upturn in global trade and container traffic following the global financial crisis. The second largest IPO in Asia (and the fifth largest globally) was the US$1.4b Shanghai listing of clean energy company, Sinovel Wind Group Co Ltd, maker of wind turbines.
US Boosted by a Surge in PE Exits
In Q1, the NYSE and NASDAQ exchanges raised US$14.9b combined, driven by smaller companies, particularly in the health care and energy sectors. US PE investors continue to exit earlier leveraged investments, including America’s largest hospital chain operator, HCA Holdings Inc. which raised US$4.3b in March, the largest PE-backed IPO in history. Bolstered by rising oil prices, energy company Kinder Morgan, completed a US$3.3b IPO, the third largest PE-backed deal ever.
“This year could be the biggest on record for PE-backed IPOs, given increasing demand for new issuances and ample of supply. Investors’ appetite for such deals has been tested and reinforced over the last several quarters, setting a solid foundation for 2011,” says Ho.
Many PE-backed IPOs in Global Pipeline
Currently 56 PE-backed companies are in registration to go public, which could raise an aggregate US$14.7b across global exchanges. In addition to companies that have formally filed, the sometimes volatile nature of the 2009-2010 market has also led to a sizeable shadow pipeline of PE-backed companies that either have yet to make an initial filing, or withdrew an IPO based on negative market conditions but remain interested in an IPO. Many of these companies are likely to make another run at public ownership sometime in 2011.
Latin America Raises More Capital than Europe
Fuelled by high rates of GDP growth, domestic consumption, foreign capital inflows, and infrastructure investment, Brazil, Argentina and Mexico raised US$2.7b in seven IPOs globally. Latin America’s largest economy, Brazil conducted five IPOs, raising an impressive US$2.1b as local companies tapped the stock market to finance expansion plans.
By contrast, Europe raised just US$2.2 billion in 50 listings, well below the US$ 8.4 billion in 48 deals raised over the same period last year. Although European IPO pipelines remain packed with companies keen for public capital, sovereign debt concerns and global uncertainty continue to hamper valuations and dampen European investor appetites.
Industrial and Materials Sectors Dominate
In Q1, the industrials sector (particularly transportation and machinery companies), raised the most funds (US$12.6b). This was followed by the energy sector (US$7.9 billion in 23 deals) and health care sector (US$6.2 billion in 29 deals). By number of deals, the leading sectors were the materials1 sector (60 deals valued at US$4.6 billion), industrials sector (48 deals) and technology sector (35 deals worth US$2.8 billion).
“Recent turmoil in the Middle East and Japan has unsettled broader stock market indexes, spooked investors, and slowed down the pace of new issuances in March. However, investors have been waiting for some time now to invest their capital, and the IPO market is still open for the right growth story and realistic valuation,” says Ho.
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