Unprecedented levels of geopolitical uncertainty are weighing heavily on dealmakers, despite improving economic fundamentals, suggesting 2016 will be a slow year for IPOs globally, according to the quarterly EY Global IPO Trends: 2016 3Q.
At US$79.4 billion, January-September global IPO proceeds were 39% lower than in the same period in 2015 and deal volumes (704) were down by 23%.
Quarter-over-quarter, global proceeds showed improvement, growing 16% compared to 2Q16 to US$35.4b, while deal volumes declined by 4% to 252.
Third-quarter performance was strong compared with 3Q15. Proceeds increased 84% compared to 3Q15 while the number of deals rose by 21%.
Asia Pacific claims number one spot
Asia-Pacific was the stand-out performer in 3Q16, with a 138% surge in proceeds to US$24.2b and a 41% increase in deal volume (176) compared to the previous quarter.
In 3Q16, the Asia-Pacific region accounted for 69% of IPOs worldwide and a 53% share of proceeds, having turned in steady gains on both measures quarter by quarter.
Although China continues to dominate, there was significant activity in Japan, Australia and South Korea. Japan, in particular, continues to see healthy IPO activity with 19 deals raising US$1.5b in 3Q161, compared to US$1.1b in proceeds through 18 IPOs in 2Q16.
“Investor sentiment in Asia-Pacific has been buoyed by ample liquidity in emerging markets and the upcoming launch of the Shenzhen-Hong Kong Stock Connect program,” says Ringo Choi, EY Asia-Pacific IPO Leader.
“With investor confidence seemingly undented by events elsewhere in the world, we expect a healthy flow of IPOs to continue in the region through the remainder of the year.”
Quiet IPO year continues in US
US IPO activity remained quiet in the third quarter, with 35 deals raising just US$6.4b ¾ largely mirroring last year’s traditionally weak third quarter when 33 US IPOs raised US$5.7b. From January to September, 79 US IPOs raised US$13.4b, representing a 44% drop in the number of deals compared to the same period in 2015 and a 49% decline in capital raised.
Over the last five years, emerging markets have underperformed and, in a number of instances, look relatively undervalued.
IPO activity in emerging markets continues to gather pace as alternative financing options are more limited and the appeal of public markets is strong.
With their return to form, EY anticipates that Asia-Pacific is expected to continue to represent the epicenter of IPO activity in 4Q16.
China is set to see a higher level of IPO activity as the regulator looks to clear the pipeline by approving bigger deals now that equity markets have stabilized. Likewise, India is anticipating robust activity on the back of stronger economic fundamentals and a pro-business political regime.
In developed markets, some companies have hit the pause button and are refocusing their energies on preparing for 2017. Although global IPO activity in 2016 will likely lag behind 2015 levels, the outlook for 2017 is positive due to improving economic fundamentals, high valuations and lower volatility which will support IPO sentiment.
While a return to the record levels of activity in 2014 may be a stretch, the IPO activity for 2017 is expected to surpass 2015.