Last Q4 2016’s EY report on global trends in initial public offerings suggested there were 1,055 IPOs globally in 2016, which raised $132.5bn, compared with 1,258 IPOs raising $197.1bn in 2015.
The consultant stressed a 16% decline by deal number and 33% by capital raised. “Not only were there fewer deals, there were also fewer megadeals. In 2016, there were only 21 deals with IPO proceeds of more than $1bn, down from 35 the previous year,” EY commented.
Speaking to InvestmentEurope, Arnaud Morvillez, portfolio manager of the Origin Sicav that invests in IPOs globally at Skylar, acknowledges that 2016 did not meet the French boutique’s expectations regarding the number of IPOs recorded as well as the total amount of capital raised.
“Investors have now become familiar with openings and closures of the IPO window along the year. Once it’s opened, we stress massive flows of IPOs and it closes, the flows dry up.
“2016 started badly for IPOs as markets crashed and sparked volatility in Q1. The European IPO market picked up in Q2 before it was hit by the Brexit vote. During the second half of 2016, the window was closed in Europe while in the US, the IPO market has been very active before it slowed down in Q4 2016 due to the presidential election. The end of the year has seen a restart of IPOs in Europe,” the fund manager observes.
The biggest provider of IPOs last year remained the Asia-Pacific region before the Europe and the US, “mostly thanks to new listing in continental China”, says Skylar’s portfolio manager.
EY reported that in 2016, Asia-Pacific exchanges accounted for 60% of the global number of IPOs and 54% of proceeds raised, “a third successive year of global market share gains by deal number and second successive year by capital raised.”
According to Morvillez, what currently occurs in Hong-Kong regarding IPOs is historical. He adds that 2016 has seen a number of state owned enterprises being sold in China and believes the trend will slow down in 2017. The Origin Sicav has particularly invested in IPOs of consumer staples companies in Hong Kong.
Mega deals to return on the IPO market
Said consultant EY, prospects for the IPO market are brighter this year as the US is expected to lead a recovery in global IPO activity. Morvillez agrees with this view, saying the US equity market is set to be the best IPO spot of 2017.
“Moreover, the Trump administration seems pro-business and US indices top very high levels. That can only be favourable for IPOs in the US,” he argues.
What to look at in the US IPO market this year? Morvillez highlights three sectors to monitor closely : technology, energy, financials.
“Massive deals are returning in the tech sector. So-called “unicorns” report revenues of hundreds of millions dollars before even being listed and their valuations if in the event of an IPO can reach billions of dollars. Snap, the firm behind Snapchat’s application, will be listed in 2017.
“The eventual listings of Uber and Airbnb raise doubts because of fiscal and regulatory issues they encounter in a number of countries. US co-working office start-up WeWork, will be listed. We can expect Dropbox’s IPO in the near future as well,” the portfolio manager of the Origin Sicav explains.
“The context is much favourable for IPOS in the US energy sector, especially for oil/gas companies. Oil prices have stabilised between 50 and 60 dollars, a lot of companies in the sector have reached a break-even point and the amount of rigs will grow in the US. We foresee a wave of Capex in the energy industry. In addition, the sector will be supported by Trump’s view on energy,” he adds.
Morvillez expects US regional banks as well as fintechs to be listed on US stock exchanges, terming fintechs as an emerging sector in financials.
“A company of an emerging sector being listed generally sparks a wave of IPOs in that new industry,” he notes, adding that as being disruptive businesses, the valuations of those firms are often priced high.