Q2 sees US$9.9bn in capital raised compared with US$1.4bn prior quarter, buoyed by Brazil’s largest ever IPO Global IPO activity increased in Q2 with 76 IPOs worldwide compared with 52 the prior quarter, according to Ernst & Young’s second quarter Global IPO update. Deal value increased seven-fold to US$9.9 billion from just US$1.4 billion. However activity remains sharply down on 2008 levels when the second quarter saw 269 IPOs raise US$38.2 billion in capital.
This quarter’s figures were bolstered by Brazil’s VisaNet deal (US$3.7 billion), which is the largest IPO worldwide so far this year and Brazil's biggest ever; metals company China Zhongwang Holdings Ltd (US$1.3 billion); and Vodafone Qatar (US$0.95 billion). Together these deals accounted for 60% capital raised worldwide. Reflecting these IPOs, Brazil and China accounted for two-thirds of global capital raised for Q2.
As in Q1, the most active country this quarter was South Korea with 17 IPOs (8 IPOs, Q1). China and Canada followed, with 13 and 9 IPOs respectively. China’s nine month ban on IPOs at the Shenzhen exchange came to end this quarter with an offering by Guilin Sanjin Pharmaceutical. The United States also saw an uptick in activity rising from 1 IPO in Q1 to 8 in Q2, of which 6 made the top 20 globally DigitalGlobe Inc; SolarWinds Inc; Bridgepoint Education Inc; Rosetta Stone Inc, LogMeIn Inc and MediData Solutions Inc. Emerging markets accounted for 53 of the 76 global IPOs.
The threshold values for the top ten global IPOs has improved dramatically this quarter up from US$12.0 million to US$171.3 million, but still radically down year on year (US$848.6 million).
Max Loh, Singapore IPO Leader and Assurance Partner, Ernst & Young LLP, comments: “We have seen an increase in global activity in the second quarter but capital raised is at a fraction of the prior year. Early signs are that the wider economy has bottomed out but recovery is likely to take time and will vary by region. In terms of number of IPOs, the Asia Pacific region has been relatively more active and accounted for 60% of the global IPOs, with the South Korea and China/HK markets leading the pack.”
Loh adds: “The IPO market generally trends the macro-economy albeit with a time lag. Historically, markets have taken at least four to six quarters to recover from an economic downturn. However, there are examples of highly successful IPOs that emerge from post recession periods. These companies, having survived the ultimate stress test, are often leaner and have demonstrated the resilience of their business model. It’s a good time for dynamic entrepreneurial companies. And the high performance of stock exchanges around the globe in the second quarter has resulted in renewed interest in companies around the world to go public.”
The leading sectors by number of deals were Industrials (16); Materials (14); Financials (10) and High Technology (10). Due to the low value of funds raised, the top three sectors by capital raised mirror the top three IPOs. Financials (US$3.8 billion), Materials (US$1.8 billion), and telecommunications (US$1.2 billion) accounted for 70% of total capital raised.
For the year to 30 June 2009, the top three exchanges by number of IPOs are South Korea’s KOSDAQ (24); Hong Kong Stock Exchange (14) and New York Stock Exchange (7). By funds raised, the top three exchanges over the same period are the BOVESPA in Brazil with the one IPO (VisaNet at US$3.7 billion); Hong Kong Stock Exchange (US$2.5 billion) and the New York Stock Exchange (US$1.7 billion).
The completion of follow-on offerings in established public companies is sometimes regarded as an indicator of IPO market revival. Between Q1 and Q2 there has been more than a 100% increase in the number of deals (up from 612 to 1,361) and capital raised (US$101.1 billion to US$284.2 billion). However, in terms of value, this has mainly been driven by financial institutions seeking to recapitalize and repair balance sheets.
In addition to follow-on offerings, Ernst & Young’s Global IPO trends report 2009 notes that market analysts commonly cite the following indicators of an IPO market revival: positive fund flows into the equity market, investor appetite, brighter corporate earnings outlook, recovery in market valuations, evidence of liquidity to spur business and consumer spending, successful public-equity transactions involving carve-outs/spin-outs from existing large public companies and new VC/PE-backed IPOs.