BY Richard Summerfield
Global initial public offering activity (IPO) suffered a significant decline during the first quarter of 2016, according to a new report from EY.
The firm’s quarterly report – EY Global IPO Trends: 2016 1Q – noted that 167 deals were completed, raising just $12.1bn. That makes it the poorest first quarter recorded since 2009. By comparison, 1Q 2015 saw 39 percent more volume and 70 percent more capital raised.
In the US, total capital raised declined 88 percent compared to the same period in 2015, falling to $753m. Deal numbers fell by 71 percent, with just 10 IPOs recorded, all of which came from the healthcare sector.
Though EY notes that the first quarter of the year is often the weakest for IPO activity, and there was always likely to be a period of depressed activity following several years of robust dealflow, many companies appear to be approaching the market more carefully than they have in years. The reason for this caution appears to be a number of issues permeating the global economy. Organisations have been spooked by fears of a global economic slowdown, increased volatility, falling oil prices and equity market turbulence. IPO activity has been weak in major markets including the Americas, the Asia Pacific region and EMEA.
The technology space, normally one of the most active sectors for US IPOs, was absent. Companies in Silicon Valley are seemingly content to wait out the market, delaying their IPOs until the market picks up.
Jackie Kelley, EY Americas IPO Leader, says: “With increased volatility in the markets and the uncertainty surrounding oil prices, interest rates and US elections, we expected a stop-start year for IPO activities. Despite a slower than usual start in the first quarter, we’re seeing signs that the IPO window will finally open. The pipeline of offerings ready to price is building up and IPOs are outperforming the S&P 500 this quarter. As the markets recover and confidence steadies, we are optimistic that IPO levels will start to trend closer to historic norms.”
Moving forward EY is confident that the slowdown in IPO activity will be short term. Once the economic slowdown, falling oil prices and equity markets stabilise, there should be a flotilla of companies ready to act on their IPO plans.
Report: EY Global IPO Trends: 2016 1Q