IPO OUTLOOK
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The outlook for domestic IPO transactions follows a similar pattern to M&A transactions, reflecting their shared fundamental drivers. The difference is that corporate decisions to go public and list on a stock market are even more sensitive to market volatility, as illustrated by the sharp pull-back in listings in the early months of 2016.
In North America, domestic IPOs slowed to US$17 billion in 2016, less than half the 2015 total, as companies shelved IPO plans amid financial market turbulence. On February 11, 2016, the VIX volatility index hit its highest point since the stock market’s deep plunge in August 2015, with additional spikes later in the year as the US presidential campaign became more heated.
Contrary to expectations, however, the surprise election of Donald Trump did not cause a sell-off but a rally. By the end of the year, the S&P 500 index had risen to an all-time high, bolstered by hopes of substantial fiscal stimulus under the new US administration and less regulatory intervention.
We expect a particular uptick in technology IPOs in the near future led by Snapchat’s mooted IPO. If successful, it would be the largest US-listed technology offering since Alibaba Group’s IPO in 2014.
As volatility subsides and stock markets rise, we expect domestic IPOs to bounce back despite the attractiveness of alternative funding sources, such as debt markets, venture capital, private equity and a healthy banking sector.
We forecast domestic IPO activity in North America to rise from US$17 billion in 2016 to hit an all-time record of US$76 billion by 2018.
DOMESTIC IPO TRANSACTIONS
Because of political uncertainty in the UK, domestic IPO proceeds in Europe slowed to US$26 billion in 2016, less than half the total for 2015. Domestic IPO values in the UK fell more sharply, to US$5.3 billion in 2016, down from US$14.6 billion in 2015.
Looking ahead, we expect Eurozone IPO activity to rebound in 2017, backed by strong business investment and the European Central Bank’s extension of quantitative easing. We forecast domestic IPOs in Europe to reach US$48 billion in 2018, with activity in the UK peaking a year later as the post-Brexit settlement becomes clearer.
Within the Eurozone, countries such as Spain with the strongest economic recoveries will experience the greatest pickup in IPO activity. France and Germany, traditional centers of Eurozone IPO activity, will also rebound in the years ahead, to peaks of US$5 billion in France and US$4.5 billion in Germany.
EUROPE-DOMESTIC-IPO
EUROPE
NORTH-AMERICA-DOMESTIC-IPO
NORTH AMERICA
Asia Pacific underwent a broad-based cooling in domestic IPOs in 2016, as worries about Chinese growth depressed confidence in East and Southeast Asia. That added to the earlier impact of slow world trade growth on Singapore’s IPO activity and the commodity slowdown that dampened Australian IPO activity.
Domestic IPO activity in Asia Pacific dropped to US$47.5 billion in 2016, down from US$58.6 billion in 2015. Looking ahead, more stable financial conditions and rebounding world trade should encourage a renewed upturn starting in 2018, with regional proceeds expected to rise to US$83.5 billion by 2019.
Key centers of domestic IPO activity will be China, which is expected to peak at US$34.6 billion in 2019, and Japan, at US$13.8 billion the same year. India is forecast to continue to grow in importance within the region, peaking at an IPO value of $US4.8 billion in 2019.
ASIA-IPO
ASIA PACIFIC
In Latin America, domestic IPO activity has been close to zero for the past three years, with listings in Brazil petering out and only Mexico showing any signs of life. Political developments in Brazil and Argentina increased risk aversion among corporate leaders and dampened IPO activity in 2016. But more recent developments show both countries moving toward more business-friendly policies. Because of the region’s weak economic outlook, however, we don’t anticipate a significant recovery of domestic IPO activity until 2018 and 2019, when Latin America’s economic growth will pick up to 2.5%. We forecast IPO proceeds to reach US$6.5 billion in 2019.
LATIN-AMERICA-IPO
LATIN AMERICA
In Africa and the Middle East, fluctuating oil prices are a major driver of stock market performance and IPO activity. Consequently, listings in the region have been limited this year. We anticipate activity to pick up again as oil prices recover, reaching US$8.2 billion by 2019. On the other hand, this year could potentially see the listing of Saudi oil giant Aramco in what would be the biggest IPO in history.
AFRICA-AND-MIDDLE-EAST-IPO
AFRICA & MIDDLE EAST
Cross-border IPO activity has been limited to a handful of exchanges as companies seek to raise capital in deeper, better capitalized markets. Since 2004, 65-70% of all cross-border IPOs have taken place in just three jursidictions: Hong Kong, the US and the UK.
Hong Kong moved into pole position as the most popular destination for cross-border IPOs in 2015, a position it’s likely to maintain in the years ahead as Hong Kong continues to attract major listings from companies in mainland China and the surrounding region.
US exchanges have typically attracted a broad client base for cross-border IPOs, encapsulating Asian, Latin American, European firms and internal cross-border issuance by Canadian companies in the US, and vice-versa.
UK listings have been popular among non-European companies in the US, Canada and Australia seeking to tap into European capital markets. But this position is at risk both from a regulatory perspective (i.e. whether UK financial services firms will have access to the European market), and the risk of further currency volatility as the UK detaches from Europe.
As a result, we forecast cross-border IPOs in the US and Europe to reach a cyclical peak in 2018, while the upswing will extend into 2019 in Asian stock markets.
Since 2004, 65-70% of all cross-border IPOs have taken place in just three jurisdictions: Hong Kong, the US and the UK.
DOMESTIC IPO TRANSACTIONS (US$B)
2014
2015
2016
2017
2018
2019
2020
North America % of world
60.5 35.2
40.1 25.2
16.7 18.1
50.5 39.3
75.8 37.6
63.5 31.6
57.0 38.8
Europe % of world
50.8 29.6
58.6 36.9
47.5 51.4
47.7 37.2
67.4 33.4
83.5 41.5
59.8 40.7
Asia-Pacific % of world
46.9 27.3
56.1 35.3
26.3 28.5
25.2 19.6
48.2 23.9
39.4 19.6
21.9 14.9
Latin America % of world
1.1 0.7
2.0 1.2
0.4 0.5
1.5 1.2
3.9 1.9
6.5 3.2
4.8 3.3
Africa & Middle East % of world
12.4 7.2
2.1 1.3
1.5 1.6
3.5 2.7
6.1 3.2
8.2 4.1
3.3 2.3
Global Total
171.7
158.9
92.4
128.3
201.4
201.1
147.0
CROSS-BORDER IPO TRANSACTIONS (US$B)
2014
2015
2016
2017
2018
2019
2020
Hong Kong* % of world
24.3 23.3
21.2 46.8
19.4 50.4
19.1 46.3
29.2 41.5
36.0 48.4
19.9 47.4
United States % of world
44.7 42.8
5.1 11.3
6.8 17.7
8.8 21.4
22.0 31.2
17.8 23.9
9.4 22.2
United Kingdom % of world
8.6 8.2
5.2 11.4
1.6 4.2
3.7 8.8
4.6 6.5
5.7 7.6
4.4 10.4
Singapore % of world
0.6 0.6
0.0 0.1
1.1 2.9
2.1 5.0
3.2 4.5
3.8 5.1
2.3 5.4
Germany % of world
0.6 0.6
1.2 2.6
0.4 1.2
1.4 3.4
1.8 2.5
1.2 1.7
0.9 2.1
Global Total
104.4
45.3
38.6
41.3
70.5
74.5
42.1
*Data includes listings by companies based in mainland China.
DOMESTIC IPO TRANSACTIONS (US$B)
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North America
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Asia Pacific
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Europe
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Latin America
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Africa & Middle East
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Global Total
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CROSS-BORDER IPO TRANSACTIONS (US$B)
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Hong Kong*
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United States
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United Kingdom
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Singapore
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Germany
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Global Total
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*Data includes listings by companies based in mainland China.
TRANSACTIONS FORECAST
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IPO OUTLOOK
Michael F. DeFranco
Koen V. Vanhaerents
Contact
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Global M&A Outlook
Regional M&A Outlook
Sector M&A Outlook
IPO Outlook
Appendix A: Transaction Attractiveness Indicator
Appendix B: Country Forecasts
Appendix C: Methodology
M&A Transactions (US$B)
M&A Transactions (# Of Deals)
Domestic IPOs (US$M)
SUMMARY
INTRODUCTION
MACRO TRENDS
Baker-McKenzie-New-Logos
RISKS
CONCLUSION
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FORECASTS
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