A positive start to 2011 followed by economic and political uncertainty
A bright beginning to 2011 proved to be something of a false dawn for the IPO market. A total of €16.3bn was raised in the first half of 2011 across the European markets compared to €10.2bn in the last six months of 2011 as markets failed to ignite after the summer as hoped, due to the heightened economic uncertainty in Europe.
The year was plagued by delays and postponements due to market volatility as a result of the Eurozone sovereign debt crisis. Nevertheless, some major floats took place in Europe, with London, Madrid and Warsaw all hosting high-profile IPOs.
A total of 430 IPOs across Europe raised €26.5bn in 2011, a 13% volume increase and just a 1% rise in money raised compared to 2010.
More than half of money raised in Europe, €14.1bn, was generated on the London Stock Exchange, despite London hosting only a quarter of the IPOs across Europe. London listings were dominated by companies in the natural resources sectors, which in total raised €8.2bn and accounted for 58% of transactions on the London Stock Exchange. Glencore, the commodities trader’s €6.9bn entrance into the FTSE 100, was the biggest deal in London bolstering IPO values in the Square Mile during 2011.
In a year which saw serious threats to the stability of the Eurozone, the Arab Spring and the downgrade of the US credit rating by Standard & Poor’s, strain was put on global capital markets, disrupting the IPO plans of companies across all the major capital markets. This was evident in the market volatility indices in the US, the UK and Hong Kong, which hit two-year highs in August 2011.
Despite the turbulent market conditions, in the US a total of 134 IPOs raised €25.6bn compared to 168 float generating €29.1bn in 2010 (which also included the €11.6bn re-privatisation of General Motors). US IPO markets experienced a surge in activity in the first half of 2011 with the return of larger deals, including HCA Holdings and Kinder Morgan. The year finished strongly with the IPOs of Groupon, Michael Kors and Zynga boding well for 2012.
Greater China was the leading global IPO centre, hosting 420 IPOs and raising €57.2bn during 2011. However, this represented a 42% drop in value compared to 2010. Hong Kong continued to build its reputation as a ‘go to’ place for luxury brand IPOs and was given a further boost with a number of high profile companies coming to market including Prada, which floated in June 2011 raising €1.5bn.
Outlook for 2012
As 2011 drew to a close, the continued uncertainty of the Eurozone significantly disrupted the European capital markets. However, in the first few weeks of 2012, we have seen some optimism return for IPO prospects with the London IPO of Ruspetro and a spate of IPOs launching in the US, including the much publicised Facebook IPO. This reflects some easing of the tough market conditions that plagued the end of 2011 and has been further boosted by the rally in stock market indices around the world in early 2012.
Whilst we expect market volatility to continue into 2012, there will be periods when market conditions will be favourable for IPOs. In this climate, companies will have to ensure that the groundwork is completed well in advance so they can be opportunistic should an IPO window open. Other lessons learned in 2011 include the need for selling shareholders to be realistic about company valuation and to ensure that the business is supported by a compelling equity story to attract potential investors.
Although there have been some encouraging signs at the start of this year, exactly when markets will pick up again is uncertain and the Olympics may be well under way by the time the IPO market gets out of the starting blocks and into its stride.