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5 July, 2017
Overall IPO activity rebounded in H1 2017 compared to the same period last year as economic fundamentals in major developed markets such as the EU and US stabilized and some political uncertainties settled.
This is according to our latest Cross-Border IPO Index, which shows that the value of issuance rose by 76% to USD 89 billion and volume increased to 728 deals, up 53% from the first half of last year. As we predicted last June, domestic deals outpaced cross-border IPOs in H1 this year, rising 93% in value compared to a 41% increase in cross-border deal values. The greater popularity of domestic issuance was largely driven by the comfort of home markets and the protection against currency volatility provided by listing in companies' functional currencies.
That said, deal making has not quite returned to the levels of 2015 – total capital raised being 24% lower in the first half of 2017.
Average deal size globally (domestic and cross-border combined), has increased by 15% to USD 122 million. However the first half of 2016 marked the lowest average deal size in more than six years at just shy of USD 100 million, so the increase is off a low base.
Koen Vanhaerents, global head of capital markets at Baker McKenzie, said:
Political stability in many markets, strong performance of IPOs and sound economic fundamentals are the forces driving investor demand, while investors have also learned to live with unpredictable developments.
The financial sector has fared quite well in the first half of 2017, with 101 IPOs raising a total of USD 22.3 billion, and also accounting for the majority of cross-border IPOs. This year's cross-border capital raising is positively impacted by the long awaited listing of AIlied Irish Bank, which raised USD 3.4 billion, dual listing in Dublin and London, and Guotai Junan Securities, a Chinese brokerage, which raised a total of USD 2.2 billion on the Hong Kong Stock Exchange.
Capital raised in the high technology sector increased significantly by 443% to USD 11.8 billion from 100 listings. This was largely driven by the capital raised in Snap Inc's listing in North America. 2017 is shaping up to be a much better year for the sector than 2016.
Consumer products and services picked up momentum this year, raising USD 8.2 billion from 69 IPOs and proceeds from cross-border IPOs totaling USD 1 billion from 10 IPOs, compared with USD 263 million from two deals in the first half of 2016. Interesting to note, that half of these are Chinese educational service companies.
Global energy and power increased capital raising by 90%, securing USD 7.7 billion from 43 deals in the first half of 2017. Kinder Morgan Canada is the largest IPO for the energy and power industry, raising USD 1.3 billion, listing on the Toronto Stock Exchange. This is the largest energy and power listing on the Toronto Stock Exchange since 2015. The sector is also awaiting the announcement of the listing of Saudi Aramco, with speculation around which stock exchange it will choose to list their shares on.
IPOs in the healthcare sector increased by 19%, with 69 healthcare companies going public in the first half of 2017. Healthcare companies dominate the cross-border IPO market in terms of volume, with 15 listings accounting for a quarter of all cross-border IPOs. There were low numbers of healthcare listings in the first half of 2016 due to potential government intervention on drug prices in the US, increased financial risks and the presidential election. Recent policy announcements in the US suggest that the sector may not be impacted to the same extent and we can therefore expect an increase in listings through the remainder of the year.
Real estate was the only industry to show a decline in both capital raising and number of companies going public in 2017.
View Sector Insight Cross-Border IPO Index
What a difference a year makes
In contrast to 2016, a poor year for IPOs in the technology sector, 2017 has got off to a very strong start with 103 companies taking to the markets raising USD 12.1 billion. This is in stark contrast to 2016, when across the year, only USD 10.7 billion in capital was raised from 123 issuances, the majority of activity coming in the second half of the year.
The increase in listings post US elections, and strong trading of IPOs in 2016 created good conditions for listing in 2017 and we expect more to come in the second half of the year. It's not all good news for the sector, as the number of firms trading above their four week listing price has fallen to 58% and investors remain cautious of overpriced stocks.
Snap's high profile IPO on NYSE in March and Netmarble's listing in Korea dominate, securing USD 3.9 billion and USD 2.35 billion respectively. In contrast, there were no listings over USD 1 billon in the same period in 2016.
Snap is the third largest technology IPO since 2014, when Ailbaba Group raised a massive USD 25 billion. Snap soared 43% in first day of trading but overall has not gained much momentum in the markets, trading mostly below the high of USD 29.44 in its first week of trading and falling close to USD 17 after the first earnings announcement in May. Netmarble's IPO priced at the upper range, rising as high as 9.2% above the IPO price, aided by their ongoing success of hit games in a highly competitive mobile sector.
View Technology Cross-Border IPO Index
Private Equity (PE) and Venture Capital-backed(VC) IPOs exits increase
Trade sales and secondary buyouts remained more attractive alternatives to IPOs but there are signs of activity stabilising. PE and VC-backed IPOs grew in absolute terms in H1 2017, with 206 IPOs raising USD 31 billion and representing 35% of all capital raised by IPOs. VC backed IPOs accounted for over 82% of volume of this activity as shareholders look to monetise their investment.
PE and VC IPOs exits share of the IPO market continues to decline, to 28% in H1 2017 falling from 40% of value in H1 2014. The certainty and strength of private sales are dampening the level of market activity. Despite the increased deal numbers in 2017, average IPO size has consistently fallen in recent years, with the average 2017 deal value of USD 151 million just half the average in 2014.
Sector Insights
Technology exits were strong in the first half of 2017, with high profile tech companies coming to market. A total of 44 PE and VC backed technology companies raised a total of USD 7.7 billion – with Snap raising USD 3.9 billion of the total.
Energy and power PE and VC backed IPOs have fluctuated over the last number of years but H1 2017 is showing positive signs with 13 listings.
Real Estate was the only industry to increase capital raised since H1 2015 from a smaller number of IPOs. Capital raised in this industry was driven by the Invitation Homes IPO, the largest US home rental company. This IPO raised a total of USD 1.7 billion on the New York Stock Exchange. This is the largest US real estate investment trust (REIT) since Paramount Group raised USD 2.3 billion in 2014. Invitation Homes is backed by Blackstone Group which invested around USD 10 billion in building a 48,000 home portfolio.
In the Healthcare sector there was modest improvement in capital raised from 2016, with 25 IPOs raising a USD 2.7 billion, well below levels in 2015 and 2016 when there was over USD 5.4 billion.
View Private Equity Cross-Border IPO Index
Asia Pacific
The region has got off to a strong start with deal volume up by 71% from 2016 and at 530 is the highest deal volume since 2011. Deal value was up by 59% from H1 2016, raising a USD 37.2 billion but was still 27% lower than H1 2015. The biggest reason for the change is the decline in cross-border capital raised in Hong Kong, which fell for the third year in a row.
"The biggest influence on overall cross-border capital markets activity in Asia Pacific are Chinese companies listing on the Hong Kong exchange, which fell in the first half of 2017," said David Holland, Head of Capital Markets in Asia Pacific.
Asia Pacific Cross-Border IPO Index
The full report can be downloaded here.
For further information, please contact:
Koen V. Vanhaerents, Partner, Baker & McKenzie
koen.vanhaerents@bakermckenzie.com
