Backlog grows as global IPO market slows further in Q3, says EY survey

Geopolitical trade tensions continue to impact IPO activity Technology, healthcare and industrials were the most active sectors in YTD 2019 Rebound to high IPO levels expected in 2020 once more favourable market conditions return

The backlog of high-quality initial public offerings (IPOs) continues to grow as issuers await more favourable market conditions, pushing sector activity down across many markets in Q3 2019 compared with Q3 2018, according to the latest EY quarterly report.

Overall, 256 IPOs came to the market in the third quarter with total proceeds of $40.2 bln, a decrease of 24% by volume and 22% by proceeds compared with Q3 2018.The first nine months of 2019 (YTD 2019) saw a decline of 26% by deal volume (768 IPOs) and a 25% drop in funds raised ($114.1 bln) versus YTD 2018.

While deal numbers were down, average first-day returns on the main markets were 27% and average current post-IPO performance was 32%.

Technology, healthcare and industrials saw the largest share of IPOs in YTD 2019, together accounting for 407 IPOs (53% of global IPOs by deal volume) and raising a combined $69.4 bln (61% of global proceeds).

Technology continued to be the strongest sector by deal numbers and proceeds in YTD 2019, representing 23% of global deal volume (179 IPOs) and 36% of proceeds ($41.5 bln). In Q3 2019, technology was also the strongest sector by deal numbers and proceeds and saw 59 IPOs (23% of global IPOs by deal volume) which raised $11.4 bln (28% of global proceeds).

EMEIA continues to face geopolitical headwinds

In Europe, Middle East, India and Africa (EMEIA), deal volumes and proceeds were down from YTD 2018 with EMEIA exchanges posting 172 IPOs (a decline of 52%) and raising a total of $21.1 bln (also a decline of 41%).

Ongoing US-EU-China trade tensions have dampened both market sentiment and the economic outlook in EMEIA. At the same time, with no deal in sight, Europe and UK are bracing for the risk of a hard Brexit in Q4 2019.

Despite these challenges, EMEIA accounted for three of the top ten exchanges globally by proceeds in Q3 2019 (Deutsche Börse with $1.7 bln from one IPO, NASDAQ OMX with $1.3 bln from three IPOs and India’s National and Bombay Exchanges with $858 mln from nine IPOs).

Cross-border IPO activity increased slightly to 10% in YTD 2019 from 9% in 2018. Additionally, investor sentiment and appetite for IPOs could improve in Q4 2019 due to a longer than expected low interest rate environment and supportive monetary policy.

“Geopolitical uncertainties, have led to poor IPO activity across all markets in the third quarter and indeed throughout the year,” said Stelios Demetriou, Partner and Head of Transaction Advisory Services of EY Cyprus.

“In Europe in particular, the combination of ongoing USChina-EU trade issues and Brexit uncertainty have led to a sharp decline in IPOs this year.

“However, the backlog of some larger IPOs waiting for more favourable market conditions continues to grow, while, in Europe, the low interest rate environment is encouraging investors to look for high-return assets. As we move into the fourth quarter, which is traditionally the peak IPO season, we can expect IPO activity to pick up”.

Americas IPOs impacted by quiet Q3 and equity market volatility

On a quarterly basis, the Americas saw 47 IPOs that raised $11.9 bln in Q3 2019, a drop of 30% by deal volume and 10% by proceeds from Q3 2018.

Both YTD 2019 IPO deal volume and proceeds also fell behind compared with the same period in 2018, with 160 IPOs in the first nine months of 2019 (a decline of 22%) and $46.9 bln in proceeds (a decline of 9%).

US exchanges accounted for the majority of IPOs in the Americas region, 79% by number of deals and 95% by proceeds YTD in 2019.

This was driven by several high-profile technology unicorns that have gone public so far this year. The NASDAQ and NYSE ranked first and second respectively by proceeds globally in YTD 2019.

Muted Asia-Pacific IPOs lifted by Shanghai’s STAR Market

In Asia-Pacific, YTD 2019 IPO volume was down 9% (436 IPOs) and proceeds decreased by 27% ($46.1 bln) compared to the same period in 2018.

The launch of Shanghai’s STAR Market offset more muted activities in Hong Kong, Japan and Australia in Q3 2019, with Asia-Pacific exchanges seeing a decline of 2% by deal volumes (173 IPOs) and 29% by proceeds ($23.7 bln) in Q3 2019 compared to Q3 2018.

However, ongoing trade tensions between China and the US continue to impact IPO activity across parts of the region.

However, Asia-Pacific continued to dominate global IPO activity in Q3 2019, representing seven of the top 10 exchanges by volumes and five of the top ten exchanges by proceeds.

Average first day returns for IPOs on Asia-Pacific’s main markets rose to 51%, while average current returns soared to 71%, predominantly because of Shanghai’s STAR Market activity.