After a promising start in the first two quarters, IPO activity dropped dramatically midway through the year, principally due to investors concerns about sovereign debt issues in Europe and Standard & Poor’s downgrade of US credit rating.
Year to end of November, the capital raised globally was down by 45%, with $155.8bn, and number of deals is also down by 20% (1117 IPOs), compared to full year 2010. Seventy-two percent of global capital was raised in the first 6 months of the year.
However 2011 fundraising activity still exceeded 2009 by more than $40bn, according to Ernst & Young’s year-end Global IPO update. The report predicts that the value of IPOs by year-end for 2011 will be approximately US$170b.
Maria Pinelli, Global Vice Chair Strategic Growth Markets for Ernst & Young says: 'The uncertainty around a resolution to the Eurozone debt crisis and its impact on the global economy has left investors and issuers with a lack of confidence'.
Asian flotations down 56% by value
Asian exchanges completed 543 deals in the first 11 months of the year raising $77.7bn, a 56% drop in capital raised compared to full year 2010 (US$177.6b). The largest IPO on Asian exchanges this year was the $5.5bn listing of Hutchison Port Holdings on the Singapore Exchange (SGX), followed by Italian fashion house Prada SpA, for $2.5bn on HKEx.
The Hong Kong Stock exchange raised $19.6bn in 53 deals, while the Shanghai and Shenzhen Stock Exchanges (SME and ChiNext) raised US$40.8b in 262 deals altogether. “Asia has been a key driver of the IPO resurgence as the global economy emerged from recession. In 2010, Asian exchanges led the world in bringing new companies to market, this trend continued in 2011; however, we have also seen a higher proportion of private enterprises wanting to go public,” says Pinelli.
IPOs by regions
IPO activity on US exchanges held up relatively well with a modest 16% drop in capital raised, from $43.5bn via 163 deals in 2010 to $36.4bn in 114 IPOs listed so far this year. IPOs on European exchanges accounted for 19% of capital raised and $29.6bn in value via 251 IPOs. This compares with 13% of total capital raised last year, with 252 IPOs raising $36.7bn. Deal value and activity has also fallen for Central and South American issuers ($8.6bn and 27 IPOs) with no IPOs recorded in Q4’11.
2011 saw the largest PE-backed IPO ever with the $4.3bn IPO of the America’s largest hospital chain operator, HCA Holdings Inc in March on the New York Stock Exchange (NYSE). Globally, PE-backed IPOs companies exited 168 companies, raising around $37bn. Seventy companies raised US$31.4b in the first six months of 2011, putting the industry on pace for its best year on record.
However, issuance reversed its course midway through the year, as investor slowly started to lose confidence in the capital market. Despite the challenging environment, pricing generally improved for PE-backed deals compared to 2010, resulting primarily from a number of large deals that took advantage of the wide-open window in the first quarter of the year. Overall, PE-backed deals have accounted for 24% of the global proceeds raised in 2011, the highest percentage on record.
Jeff Bunder, Global Private Equity Leader at Ernst & Young says: 'Moving into 2012, the outlook remains heavily dependent upon a stabilization in Europe, accelerated growth in the US and improved investor confidence in Asia. With PE portfolio aging rapidly, sponsors are looking closely for any indication that the IPO window is reopening'. As at the beginning of December, there were more than 95 companies registered to go public, which in aggregate could raise more than $20bn.
'In a new normal, where volatility in public equities markets and in the global economy are constant and expected, PE firms have become more nimble and are prepared for when the IPO window opens next', concludes Bunder.
IPOs by sectors
The leading sectors by number of deals were materials (254), industrials (185 IPOs); and high technology (137). The following 3 sectors (out of 12) accounted for 47.3% of total capital raised: materials ($28.0bn), industrials ($26.1bn) and energy ($19.7bn).
US exchanges at front
The top three IPOs by capital raised were Glencore International plc, which raised $10.0bn from a dual listing on the London Stock Exchange and HKEx, Hutchinson Port Holding ($5.4bn), which listed on the Singapore Stock Exchange and Bankia ($4.4bn), which listed on the Madrid Stock Exchange. Of the top 20 IPOs, 13 are from emerging markets.
NYSE was ranked first by highest capital raised among exchanges.
There were 61 deals which raised $28.2bn (18.1%) in the eleven months of 2011. In second place by funds raised, is Shenzhen Stock exchange, (SME and ChinNext) which raised $26.3bn (16.8%) and HKEx for $19.6bn (12.6%). The top three exchanges by deal activity are the Shenzhen stock exchange (226 IPOs); Warsaw Stock exchange (117) and Australian Securities Exchange (93).
Moving into 2012
Concludes Pinelli: 'The key to the IPO market recovery lies in the speedy resolution of the European debt crisis, which is likely to have a stabilizing effect on the global capital market and restore investors’ confidence. Many fast growing companies will continue to look at IPOs as a way of raising capital and remain at the heart of their growth strategies'.