- Total global IPO volume falls by a fifth, but cross-border issuers defy protectionist fears, raising 15% more
- New York outperforms Hong Kong and London as listing venue of choice
- Middle East IPO value falls, but expected to pick up in H2 2018
- Number of cancelled deals more than halves globally
Political concerns and market volatility have once again dampened the IPO market in the first half of 2018, mainly as a result of lower capital raising in Asia Pacific and EMEA. A total of 676 listings have taken place so far in H1 2018, down 19% on the comparable period last year. The value of listings globally has also fallen 15% to USD 90 billion, with capital raising in the Middle East falling 70% compared to the same period last year.
Worries around geopolitics – in particular US President Trump’s protectionist policies, as well as a lack of progress around Brexit negotiations and prolonged political uncertainty in Italy – weighed on investors’ minds and dented the headline numbers. Market volatility peaked early in the year to levels not seen in 2017, adding to the challenge of finding the right time to launch an IPO.
However, cross-border IPOs significantly outperformed. A surge in capital-raising in North America's deep capital markets led the charge, with foreign issuers seemingly perfectly happy to list in the US despite protectionist rhetoric and just under half of the billion dollar IPOs successfully launched in the US.
Issuers raised more than USD 16.6 billion, an increase of around 15% on the same time last year. The number of cross-border deals also climbed, up 18% to 85, with three of the top ten cross-border IPOs debuting on North America exchanges. While the US proved attractive to 13 Chinese cross-border issuers, Hong Kong continues to be favoured with 18 deals. This resulted in Baker McKenzie's Cross-border Index value rising to 17.4 from 13.2 in H1 2017, just below the highest recorded of 18.7 in H1 2014.
"While domestic issuers are adopting a ‘wait and see’ approach in light of various political issues, fears over globalisation going backwards and economic nationalism haven't reached the cross-border market," said Koen Vanhaerents, global head of capital markets at Baker McKenzie. "To see cross-border activity going up shows a good degree of health in global equity markets, despite quieter domestic markets."
The dip in Asia Pacific and EMEA is slightly offset by stronger cross-border capital raising in North America and higher domestic listings in Latin America. EMEA lost top spot for billion dollar listings to North America, with only two recorded in the first half of the year. However, markets in EMEA remain active and the volume of cross-border deals remains consistent.
The number of withdrawn IPOs in the first half of the year also more than halved to 11 compared to 23 in H1 2017 as potential issuers and their advisers have become more skilled in navigating uncertainty.
Dealmakers will however be hoping for a less turbulent second half to get more deals away, as economic fundamentals remain reasonably strong with a decline in the global economy not forecast to impact until 2020.
Overall (domestic and cross-border) IPO activity in the Middle East has gone off to a slow start, with capital raising amounting to only USD 263 million (▼70% y/y) from 6 IPOs (▼54% y/y) in H1 2018, compared to USD 872 million from 13 deals in H1 2017 and USD 639 million from 3 deals in H1 2016.
In 2017, the total number of listings by Middle Eastern issuers more than tripled, buoyed by a general improvement in market conditions and investor confidence in the region. Despite the slow start in H1 2018, IPO activity is expected to start to pick up in the second half of the year as a result of the privatization drive in the region, which will lead to the listing of government and quasi-government enterprises.
"While the number of IPO transactions during the first half of this year was lower than expected, we still believe that appetite is there, particularly in Saudi Arabia and the UAE," said Mohammad Al Rasheed, a Capital Markets/M&A partner at Baker McKenzie's associated firm in Saudi Arabia. "The IPO pipeline includes a number of transactions that aim to hit the market later this year, although it is likely that some of these transactions will spill into Q1 of 2019."
Welcome to New York
The New York Stock Exchange (NYSE) and Nasdaq were the leading stock exchanges for all IPOs in terms of volume and value. Leading the charge in the US was the cross-border market, where value climbed 338 % to USD 9.1 billion across 30 deals. That made up for a weaker performance in the domestic market, which saw value drop by 20% across 148 deals compared to 120 in the same time last year. The NYSE was the top destination for cross-border capital raising, also winning a number of tech IPOs away from Nasdaq.
Hong Kong was the most active venue for cross-border IPOs alone accounting for a 36% share, as the established trend for China-domiciled companies to list on the exchange remains firmly in place.
The London market seems to be bearing the brunt of concerns about Brexit and wider threats to globalisation and free trade, with both the value and volume of deals recorded there dropping. Capital raising fell by 50% for the first half of 2018 to USD 4.6 billion while the number of issues fell by 9% to 32. Despite this, the London Stock Exchange retained its place as the leading destination for IPOs in the region, though the biggest deal of the year was in Frankfurt.
Regarding issuer nations, the US was the most active by number of deals issued at 107, followed by India with 95 and China with 77.
The US also topped the table in terms of capital raised with USD 20.8 billion, followed by China with USD 13.2 billion and Germany with USD 8.7 billion.
India's high volume of IPOs is notable as a market that has been going from strength to strength in recent years Domestic listings have been robust and will remain so until the last quarter, when elections begin.
The most active cross-border issuers came from China with 31, a total of 18 of which were listed on the Hong Kong Exchange, the rest in the US.
Sector focus: it's still all about the money.
Financials fell but retained the top slot as most active sector for value and volume of deals recorded in the first half. A total of USD 20.7 billion of deals got away, a 33% fall on H1 2017, with 115 deals, down from 119. Financials accounted for two of the top ten IPOs: AXA Equitable Holdings and DWS Group.
The only other sectors to raise more than USD 10 billion in H1 were High Tech and Healthcare. High Tech (up 44%), Healthcare (up 45%) and Real Estate (up 86%) were the only sectors where companies raised more in the first half this year than last year.
Private equity (PE) and venture capital (VC)-backed IPOs fell 46% in volume and 13% in value as well as losing share in the overall IPO market. The slide mirrors a slowing pace of overall exits for both PE and VC, driven by funds holding assets for longer to make operational improvements to drive up value rather than relying on leverage and financial engineering to deliver returns.