Mega-deals drive rise in fundraising from initial public offerings
Bankers expect trend to continue in 2019 despite recent volatility in equity markets
International “mega-IPOs” drove an uptick in fundraising from initial public offerings in 2018, a trend that is seen continuing into next year despite volatile markets as Silicon Valley unicorns line up to go public.
Proceeds rose 5 per cent over the previous year to a four-year high of more than $200bn, but that amount came by way of nearly 300 fewer deals, according to Dealogic.
Listings in Asia accounted for the lion’s share of issuance, with more than 46 per cent of global proceeds and the year’s top three IPOs — SoftBank, China Tower and Xiaomi.
“What defined the year was the mega-IPO — deals greater than $1bn,” said Liz Myers, global head of equity capital markets at JPMorgan. “We had around 30 deals [of that size] come to market across sectors and regions, something we expect to continue in 2019.”
Bankers attributed the greater instance of large offerings to factors including the increasingly deep pool of private capital available to companies ahead of public listings and the rise in equity markets to all-time highs or close to them before the broad sell-off in the fourth quarter.
The biggest IPO of 2018, which involved heavily indebted SoftBank spinning-off its mobile business as a separate listed company, was by far the largest in Japanese market history and came close to breaking Alibaba’s $25bn record for the largest ever.
Chart showing big IPO deals of 2018 (SoftBank was biggest)
Despite cries of “overpriced” from institutions, the issue was about two-times over-subscribed and all seemed to be going well until SoftBank mobile’s first day of trading on December 19. The shares plummeted 15 per cent on debut, with institutional investors saying that they would need to fall about 30 per cent from the IPO price to represent good value.
Technology IPOs dominated, accounting for nearly a third of global proceeds, including the first real sampling of so-called “unicorns”, or companies that have achieved valuations of more than $1bn with private capital. Tech unicorns raised a record $57bn globally.
Among the more high-profile unicorns to list, music streaming service Spotify opted for a “direct listing” on the New York Stock Exchange rather than a traditional IPO that involved raising fresh capital — a process that may be adopted by other unicorns.
US-listed IPOs, almost 30 per cent of the year’s total proceeds, hit a four-year high in both in proceeds and deal count, helped by the most Chinese listings since 2010 in spite of the trade war between the two countries.
The year also saw the first cannabis company going public in the US, Canada’s Tilray, which also proved to be the top performer. From the IPO price of $17, the shares were trading above $70 late in the year, though off their September high of $300.
In Europe, Dutch payments company Adyen listed in June and shares immediately almost doubled, but some big-ticket deals flopped.
Stung by concerns over resurgent market volatility and the potential impact of tariffs, Volvo Cars decided not to go ahead with its listing in September. The following month, both Aston Martin and Funding Circle — arguably the UK’s most hotly anticipated deals of the year — stumbled hard when they hit the market.
Spanish energy company Cepsa, Portuguese retailer Sonae and Dutch car leaser LeasePlan all pulled their deals.
The Hong Kong stock exchange claimed the crown for most proceeds raised while Nasdaq had the largest number of deals.
Chart showing top stock exchanges for IPOs in 2018 (Hong Kong was top)
Daniel Wan, a partner at Addleshaw Goddard, attributed the rise in Hong Kong IPOs to “mostly to a favourable regulatory environment and some mega-deals, including several biotech companies, Ascletis, BeiGene, Hua Medicine and Innovent, and two unicorn companies, Xiaomi and Meituan, that raised the bar.”
Hong Kong this year changed its rules to allow companies with dual-class share structures and opened the door to biotech firms that have yet to generate revenue.
All told, the average offer to current return on global IPOs was roughly 20 per cent, propelled by gains from listings on emerging market exchanges versus developed markets. Performance was fragmented and the listings market was not immune to the ructions that have characterised the closing months of 2018.
Nevertheless, large high-profile companies such as ride-sharing company Uber — a so-called decacorn that could achieve a valuation of more than $100bn — and rival Lyft have set the wheels in motion for an IPO for next year.
“In the first quarter, we are still going to see some very large, must-own IPOs globally — a fewer number of offerings, but the average size of those companies will be larger,” said Paul Donahue, head of equity capital markets Americas at Morgan Stanley.
Concerns about trade tensions, rising interest rates and a global economic slowdown have added an air of uncertainty to the outlook for 2019.
“When the Vix is north of 20, it has been historically harder to execute IPOs relative to periods of more stability where you will see the Vix in the mid-teens,” said David Ludwig, head of Americas equity capital markets for Goldman Sachs, referring to Wall Street’s “fear index” — a measure of expected volatility for US stocks.
“While the Vix has recently been at elevated levels, we have not seen anybody slow down their process to go public.”
Additional reporting by Shannon Bond