By Written by Craig Clay, full bio below.
Forecasters appear to be right in their predictions that 2017 would be a blockbuster year for IPOs, with the first half of the year seeing the highest volume of global IPOs in nearly a decade. Year over year, deal values rose 90 percent to US$83.4 billion and the volume of IPOs increased 70 percent to 772. That activity is only expected to increase according to a survey of global dealmakers by Mergermarket. But what is driving this hot market and how sustainable is it?
Tech and Asia Rising
The tech sector and the Asia-Pacific region have been key drivers of IPO volume in 2017. While North America shows promise in expected IPO activity, due to its rebounding stock market and higher liquidity, the Asia-Pacific market has performed strongest. The region was responsible for 61 percent of all global deals in the first half of 2017.
Asia Pacific companies are taking advantage of the changes that governments, in particular China, have made to help carry out IPOs. The region has a robust market and has proven strong performance, which encourages companies to pursue an IPO, and attracts investors toward them.
Despite the current upward trend, Asia Pacific is not immune to a downturn. Issues including North Korea’s nuclear tests and unsettled territorial disputes in the South China Sea could curb investors’ enthusiasm for deploying capital in the region.
The technology sector saw a sharp increase in deals in the first half, valued at USD 12.1 billion, up from the USD 10.7 billion raised in the whole of 2016. Forecasters see no slowdown in the upward trend.
The tech companies driving this trend have performed well and promise strong returns to investors, which generally makes the stocks both safe and highly desirable to own. And as market conditions continue to change, it is likely to see the number of technology companies carrying out IPOs increase.
Still, it is imperative to weigh the risks associated with these technology IPOs. Two of the largest tech IPOs this year, Snap and Blue Apron, opened strong but quickly declined. These high-profile issuers could be a strong deterrent to other companies considering going public.
While the large majority of survey respondents believe that the instance of IPOs will “increase somewhat,” forecasters believe that this optimism is not entirely warranted due to uncertainties in the market that may prove to be harmful.
The current geopolitical uncertainty is overwhelmingly the biggest potential challenge to IPOs. Upcoming EU elections, the current administration and regulation challenges in the United States, disputes in the Persian Gulf, and civil unrest in South America are seen as major contributors to volatility. If tensions in these geographical areas escalate, it could very likely affect the global market sentiment, which would negatively impact IPO activity.
The important takeaway for companies considering an IPO and investors is that, past performance is not necessarily indicative of future results. It’s critical that companies understand the multitude of risks they should be tracking to ensure that their public offering goes smoothly.
Craig Clay is the President of Donnelley Financial Solutions. With more than 20 years at Donnelley Financial Solutions, Craig has built, managed, integrated and transformed highly successful technology, services and outsourcing businesses, specializing in mission-critical document and information management. In addition to being responsible for customer satisfaction and retention, as well as owning the overall vision, strategy and goals for the business, Craig focuses on aligning global market strategies with the company’s continued commitment to aggressive technological innovation across on product and service offerings.