- 2018 IPO activity charts a steady course despite volatility and uncertainty
- Technology sector leads with record number of 40 unicorn IPOs raising US$32.2b
- 2019 to start cautiously with IPO activity set to rise in second half of the year
Global IPO proceeds rose in 2018, supported by investor confidence, large pools of liquidity, strong valuations and low interest rates. Until beginning December 2018, 1,359 IPOs had been registered with proceeds of US$204.8b – a 6% increase on proceeds despite a 21% decline in volume. The rise of unicorn-related IPO activity and mega IPOs were key factors in helping to push 2018 proceeds beyond 2017 levels. This trend is expected to continue into 2019, with the backlog of IPO candidates increasing and capital becoming more widely available.
In terms of deal volume Asia-Pacific declined but still dominated with Americas and EMEIA accounting for a higher share of deal volume. The technology, industrials and health care sectors were the most prolific sectors by deal numbers in 2018, together accounting for 652 IPOs (48% of global IPO by deal numbers) and raising US$84.2b in total (41% of global proceeds).
Activity in Q4 2018 (326 IPOs and proceeds of US$53.7b) was 34% lower in deal volume and 10% lower by proceeds compared with Q4 2017. Market volatility and continued geopolitical uncertainty were contributing factors in a strong decline in quarter-over-quarter IPO activity in all regions during Q4 2018, signalling what is set to be a cautious start to 2019. These and other findings were published today in the EY quarterly report, Global IPO trends: Q4 2018.
EMEIA increased global IPO market share riding the wave of global geopolitical tensions
In EMEIA, deal volumes (432) and proceeds (US$47.7b) were down in 2018. EMEIA’s 2018 IPO activity was 16% and 26% lower, respectively, than 2017 in terms of number of deals and proceeds, with geopolitical tensions having a clear impact on IPO activity.
Despite this, EMEIA exchanges remained strong as the world’s second largest IPO market providing two of the global top five megadeals in 2018, and contributing four unicorn IPOs (which raised US$2.7b). EMEIA increased global IPO market share with 32% of global deal numbers and 23% by proceeds in 2018. Moreover, EMEIA accounted for three of the top ten exchanges by proceeds (Germany, UK and India) and two by volume (India and NASDAQ OMX).
Main market IPOs that launched in 2018 posted first-day returns of nearly 10% and have outperformed most main market indices in 2018, solidifying investor confidence in the EMEIA IPO market.
Stelios Demetriou, EY Cyprus Partner – Transaction Advisory Services Leader, says:
“Despite the global uncertainty, IPOs around the world followed a steady course in 2018, mainly driven by mega-IPOs and IPOs by unicorn companies. The trend is projected to continue in 2019, with IPOs remaining a key source of funding and growth for larger organisations around the globe. In contrast to the above, the Cyprus Stock Exchange continues to face limited relevant activity; with IPOs not utilised as a funding tool for various reasons. This inevitably hinders the ability of local businesses to raise equity capital and in some cases, results in them considering alterative markets like LSE’s Alternative Investment Market for these purposes.”
Americas IPO momentum sustained in 2018
With 261 IPOs raising US$60.0b, deal volumes and proceeds of Americas IPO markets in 2018 exceeded 2017 numbers by 14% and 16%, respectively. The US remained in the spotlight as the leading source of IPOs in 2018, accounting for 79% of Americas IPOs and 88% by proceeds.
Asia-Pacific benefits from megadeals across the region
Asia-Pacific continued to dominate global IPO activity, accounting for six of the top ten exchanges globally by deal number and five of the top ten exchanges by proceeds. However, 2018 deal volumes (666 deals) were down by 31% versus 2017, while proceeds (US$97.1b) were up by 28% due to a number of mega IPOs in the region.
2019 outlook: a cautious start will lift in second half of the year
Looking ahead, a number of uncertainties are likely to prevail in 2019. Trade tensions between the US, China and the EU; the outcome of Brexit; and uncertainty with respect to the stability of a number of European economies, are set to continue and ultimately determine overall IPO
sentiment. At the same time, with interest rates expected to rise in the US, the European Central Bank may in time feel the pressure to follow suit, which will also influence IPO activity in the quarters to come.
While 2019 IPO deal numbers could be below those recorded in 2018, it is likely that global proceeds could meet or exceed high 2018 levels, particularly if a greater number of unicorn companies and more companies from the technology, industrials, consumer products and health care sectors come to the public capital markets in 2019, as expected. Cross-border activity is expected to maintain its momentum well into 2019, with the US, Hong Kong and London continuing to be the top destinations for IPO activity.