Highlights of the quarterly EY Global IPO Trends: 2015 3Q report include a marked slowdown in global IPO activity and during the third quarter. Following a blow out second quarter, especially in China, IPO activity in emerging markets slowed notably in 3Q due to the market meltdown and suspension of new listings in China.
Moreover, IPOs remained at low levels in developed markets related to the turbulence in financial markets, although the EY report notes it appears that M&A activity should pick up in the fourth quarter in the U.S. and Europe.
Breakdown of global 3Q IPO activity
Global market volatility in August hit the highest levels in almost five years with the selloff in Chinese stock markets, so financial sponsor desire for IPO exits was minimal in the third quarter. Due to sponsors wait and see perspective, deal value for PE- and VC-backed IPO exits (26 IPOs raising US $4.9 billion) dropped by a whopping 89% compared to the third quarter last year. The total number of deals was also down 62%, with Europe and the UK seeing only a few deals. Overall this has not been a good year for financial sponsor participation, with private equity and venture capital investors only representing 18% of deals globally (over 30% at this time last year).
Given there were 466 IPOs that raised US $57.8 billion through the first three quarters of 2015, the Asia-Pacific remains the top region for IPO activity, both in terms of number of deals and total proceeds. That said, IPO activity contracted dramatically in the third quarter, with only 101 IPOs totaling US $8.4 billion. That is relative to 218 IPOs that raised US $34.9 billion in 2Q 2015. Relative to 3Q 2014, this represents a 25% drop in numbers and 43% drop in total proceeds.
Of note, Japan is on track to top 100 IPOs by the end of the year, its best performance in the last eight years.
Maria Pinelli, Global Vice Chair, Strategic Growth Markets for EY, comments: “The IPO market in Asia-Pacific is entering a period of uncertainty. With further IPOs unlikely on Chinese exchanges this year, overall deal volume in the fourth quarter will be down. However, while investors in ASEAN markets are pulling back, companies are continuing to list in the more mature markets. Japan is on course for a record year and activity looks set to pick up again in Australia in the fourth quarter. Although Mainland China has already seen more stock exchange listings in 2015 than in the whole of 2014, the outlook for the region to the end of the year is mixed.”
Although U.S. IPO activity level was off by 37% in number of deals and 67% by capital raised relative to the first nine months of last year, the U.S. was still the best performer with 32 deals totaling up to US $4.9 billion. However, the U.S. remained behind the Asia-Pacific region in both categories. U.S. firms were only involved in two of the ten largest IPOs in the third quarter, highlighting the world-wide trend of shrinking deal sizes.
Pinelli also notes it looks like IPO activity will pick up through the end of the year:
“The prospects for the IPO market for the remainder of the year and beyond rest on investor confidence. Good news seems to be mixed with bad, which has led to this stop-start market. Volatility has impacted different markets at different times of the year, from worries surrounding Greece and stock market turbulence in Asia, to recent uncertainty over US interest rates. If developed markets can withstand the uncertainty and volatility reduces, we’d expect IPO activity to pick up again in the last quarter, with our teams on the ground reporting very healthy levels of activity in the pipeline.”
See the full report here EY-global-ipo-trends-2015-3q