Global IPOs on the up but rocky road ahead

BY Richard Summerfield

For the global IPO industry, the first quarter of 2016 was disappointing period, recording the weakest activity since the first quarter of 2009, according to EY's Global IPO Trends 2016 report. Although the second quarter of the year saw the IPO space enjoy a marked recovery, at the mid-year point activity remains significantly below the first half of 2015.

The second quarter of 2016 saw a 120 percent jump in capital raised, climbing to $29.6bn from 246 deals – up almost 29 percent on the first three months of the year. US capital raised was up 755 percent, Asia-Pacific was up 20 percent, and Europe, the Middle East and Africa saw an uptick of 187 percent. The UK and Greater China were the only major IPO destinations that failed to see an increase in capital raised. The most significant gains were made by Australia and New Zealand, which saw proceeds increase by 820 percent.

The report suggests that though things improved significantly in the second quarter, there is more to be done if 2016 is to match IPO activity seen in recent years. Worryingly, the market will remain at the mercy of a febrile global economy which looks set to remain in a period of uncertainty.

Given this  economic and political volatility, the IPO industry will experience an uncertain second half of the year. Speaking of the report, Jackie Kelley, EY Americas IPO leader, said: "Despite the substantial uplift in global IPO activity in the second quarter, there are still a large number of IPO-ready companies sheltering from continued volatility and waiting for much needed clarity on the global economic and political landscape. In the meantime, activity is slow but improving."

If the outlook improves, a number of IPO-ready companies are waiting to enter the market. However, concerns surrounding the UK’s EU referendum result, the impending US presidential election and persistent worries about the direction of interest rates are all likely to impact on IPO activity moving forward. There is, however, an impressive pipeline of technology IPOs developing in the US, which may encourage activity after the November election.

Report: EY Global IPO Trends 2016 2Q

Britain to exit European Union

BY Richard Summerfield

The British people have spoken and in a historic vote have chosen to leave the European Union after 43 years. The decision to leave was secured by a vote of 52 percent to 48.

A result that until fairly recently was considered unthinkable has been handed down this morning and, as result, global financial markets and stocks were plunged into a drastic and inevitable downward spiral. As a result of the ‘leave’ campaign’s victory, the pound fell 10 percent against the dollar, dropping to levels last seen in 1985; European shares too dropped more than 8 percent. Furthermore, billions of dollars were wiped off the market value of several of Europe’s biggest banks.

The UK’s decision to exit the European Union is a lurch into the unknown not only for Britain but for the wider European and global economies. Though there are many throughout Europe who have taken issue with the direction and policies of the 28 nation bloc, no country has ever taken the nuclear option and opted to leave.

Though the vote is hugely momentous for the UK, the result will also be significant for the future of the EU itself. Should the UK secure favourable exit terms from the bloc once Article 50 of the Lisbon treaty has been invoked, further disintegration of the bloc could occur. With France in particular becoming increasingly hostile to the EU, there will be interesting spectators on the other side of the English Channel watching the negotiations. With Brexit secured, ‘Frexit’ could be next on the agenda. As such, given the uncertain nature of Europe’s political and economic status, how the remaining 27 members of the union handle the UK’s exit could have huge ramifications for worldwide economic stability.

For the UK’s economic development, there are further issues which will be raised over the coming months and years. London’s status as Europe’s preeminent financial centre will be called into question moving forward, as will the potential of a return to recession for both the UK and Europe. The possibility of an emergency Brexit budget has been mooted by the chancellor of the exchequer, George Osborne, though this may seem unlikely given his ‘Remain’ loyalties.

While the future of the country is uncertain, one thing we know for sure is that prime minister David Cameron will not be the man to lead the way. By the time of the Conservative party conference in October, the UK will have a new leader as Mr Cameron chose to announce his resignation on Friday morning as the world was still digesting the result of the referendum. The future of the chancellor, a man who many considered a natural successor, may also be tied to that of his prime minister; Mr Osborne may now find himself on the outskirts of the political agenda, with chief Brexiteer Boris Johnson the frontrunner to replace Mr Cameron.

No matter who leads the country, the timing of the invocation of Article 50 will be crucial. Its activation will start the two year countdown toward Brexit, during which time the manner of the UK’s exit will have to be decided, as will the nature of the country’s future relationship with the EU.

Given the shaky ground on which the global economy sits, the decision of the British people to turn away from Europe will likely be damaging. The country’s access to the EU's trade barrier-free single market will likely disappear or be hugely curtailed.

For both Britain and the global economy, all bets are off.

News: Britain votes to leave EU, Cameron quits

Global IPO down in Q1 – EY

BY Richard Summerfield

Global initial public offering activity (IPO) suffered a significant decline during the first quarter of 2016, according to a new report from EY.

The firm’s quarterly report – EY Global IPO Trends: 2016 1Q – noted that 167 deals were completed, raising just $12.1bn. That makes it the poorest first quarter recorded since 2009. By comparison, 1Q 2015 saw 39 percent more volume and 70 percent more capital raised.

In the US, total capital raised declined 88 percent compared to the same period in 2015, falling to $753m. Deal numbers fell by 71 percent, with just 10 IPOs recorded, all of which came from the healthcare sector.

Though EY notes that the first quarter of the year is often the weakest for IPO activity, and there was always likely to be a period of depressed activity following several years of robust dealflow, many companies appear to be approaching the market more carefully than they have in years. The reason for this caution appears to be a number of issues permeating the global economy. Organisations have been spooked by fears of a global economic slowdown, increased volatility, falling oil prices and equity market turbulence. IPO activity has been weak in major markets including the Americas, the Asia Pacific region and EMEA.

The technology space, normally one of the most active sectors for US IPOs, was absent. Companies in Silicon Valley are seemingly content to wait out the market, delaying their IPOs until the market picks up.

Jackie Kelley, EY Americas IPO Leader, says: “With increased volatility in the markets and the uncertainty surrounding oil prices, interest rates and US elections, we expected a stop-start year for IPO activities. Despite a slower than usual start in the first quarter, we’re seeing signs that the IPO window will finally open. The pipeline of offerings ready to price is building up and IPOs are outperforming the S&P 500 this quarter. As the markets recover and confidence steadies, we are optimistic that IPO levels will start to trend closer to historic norms.”

Moving forward EY is confident that the slowdown in IPO activity will be short term. Once the economic slowdown, falling oil prices and equity markets stabilise, there should be a flotilla of companies ready to act on their IPO plans.

Report: EY Global IPO Trends: 2016 1Q

European IPO activity: slight 2016 decline expected following “bumper” 2015

BY Fraser Tennant

Mega deals with a total value of more than €1bn made the European IPO landscape a hive of activity in 2015, according to a newly-published analysis of last year’s market.

Yet, despite the high levels of activity witnessed over the past 12 months, 2016 is expected to be somewhat more subdued, with market conditions serving to hinder IPO activity in the first half of the year especially.

A key finding of PwC’s latest IPO Watch was that European IPOs finished 2015 on a high with total annual proceeds up 16 percent, totalling €57.4bn, and average offering value (excluding IPOs raising less than $5m) up 27 percent year on year, totalling €248m. In addition, London IPO proceeds decreased by 16 percent as the London market was impacted by general election fears, Chinese contagion and tumbling oil prices. PwC’s outlook for the London IPO pipeline, although still containing attractive investment opportunities, remains cautious and less optimistic than this time last year, with overall proceeds expected to fall in 2016.

Furthermore, the IPO Watch forecasts an increase in the number of postponed or cancelled deals in 2016, with many companies battling against the twin forces of market volatility and challenging market conditions. In fact, 61 IPOs were postponed or withdrawn in 2015 (2014 saw 49), 44 due to market conditions.

“As we start 2016, a cold chill has descended across pretty much every market globally – this is certainly a more complex climate to that of 2015,” said Vivienne Maclachlan, PwC’s Capital Markets director. “We rounded off last year with six bumper IPOs, which really saved the day from an annual IPO proceeds standpoint. But that stat really does mask the fact that overall it was not a particularly memorable year for London IPOs.

"This year, I would expect to see the number of companies coming to market to marginally decline, as investors continue to scrutinise investment opportunities and those that can wait, will wait. Having said that, I think 2016 proceeds will be bolstered by the continuing trend of mega deals - the too-big-to-miss-out sentiment - and that we will see a recovery towards the middle of the year.”

PwC’s IPO Watch surveys all new primary market equity IPOs on Europe’s principal stock markets and market segments (including exchanges in Austria, Belgium, Croatia, Denmark, France, Germany, Greece, the Netherlands, Ireland, Italy, Luxembourg, Norway, Poland, Portugal, Romania, Spain, Sweden, Switzerland, Turkey and the UK) on a quarterly basis. Movements between markets on the same exchange are excluded.

The survey was conducted between 1 January and 31 December 2015 and captures IPOs based on their first trading date.

Report: IPO Watch Europe 2015

$1 trillion wiped from Asian markets as Chinese economic slowdown verges on meltdown

BY Fraser Tennant

In a major drop in stocks verging on a meltdown, more than $1 trillion has been wiped from Asian markets following a sharp drop in the value of Chinese shares.

Yesterday saw the biggest one-day drop since 2007 with the Shanghai Composite, the mainland benchmark index, down 8.5 percent at 3,209.91 points (erasing all the gains made this year), the Hong Kong Seng index closed at 5.2 percent (21,251.57 points), and Japan's Nikkei 225 (the region's biggest stock market), closed 4.6 percent lower (18,540.68 points) - its lowest point in almost five months.

Markets were also dragged down elsewhere in the region with the Australian S&P/ASX 200 finished 4.1 percent lower (5,001.30 points), while South Korea's Kospi index ended yesterday 2.5 percent lower (1,829.81 points).

As Chinese shares continue their fall this week, the country's slowing growth and volatile markets sparked panic among global traders, with stock markets in London, Paris and Frankfurt reacting with alarm to the crisis engulfing the world's second largest economy.

"It is a China driven macro panic," said Didier Duret, chief investment officer at ABN Amro. "Volatility will persist until we see better data there or strong policy action through forceful monetary easing."

In a frenzied attempt to reassure investors, the Beijing government has made use of its cash reserves to shore up the market (a figure of at least $1 trillion as been quoted) and has given the go-ahead for its main state pension fund to invest in the stock market. 

Under the government’s plans, the fund will be allowed to invest up to 30 percent of its net assets in domestically-listed shares. By increasing demand for them, the government hopes prices will rise. So far though, this intervention appears to have done little to calm the fears of traders both within China and overseas. 

"China could be forced to devalue the yuan even more, should its economy falter, and the equity markets are dealing with the prospect of a weaker yuan amplifying the negative impact from a sluggish Chinese economy," said Eiji Kinouchi, chief technical analyst at Daiwa Securities in Tokyo.

If the yuan is devalued further and Chinese citizens end up losing their life savings in the stock market, widespread social unrest may follow: a true nightmare scenario for a an under-fire Beijing government. 

News: Great fall of China sinks world stocks, dollar tumbles