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A Snapshot of Mid-market IPO Activity

This article is extracted from Global Insight - April 2017, Nexia International

Despite global economic uncertainty, 2016 saw an upward trend in IPO activity in many key markets around the world, but the US experienced its weakest year since 2008.

Manufacturing driving strong IPO activity in China

There were 46 IPOs issued on the Shenzhen SMEs board during 2016, raising RMB22.12bn – an overall increase of 4.5% compared to 2015. There were 78 IPOs on the Shenzhen Growth Enterprise board, raising RMB25.76bn – an overall decrease of 12.6% compared to 2015¹.

The Chinese manufacturing sector saw the largest number of IPOs on both boards in 2016, with 36 IPOs on the SMEs board and 54 on the Growth Enterprise board.

The last quarter of 2016 was the strongest for IPO activity, with 22 IPOs issued on the Shenzhen SMEs board and 30 on the Shenzhen Growth Enterprise board. This represented 42% of the total 2016 IPOs.

The China Securities Regulatory Commission decided to slow the speed of IPO approvals back in 2015, resulting in a cooling off in activity, as demonstrated by the number of listings between Q3 2015 and Q2 2016. The number of IPOs began to increase in Q3 and Q4 2016 as the approval process started speeding up again, and this trend is expected to continue in 2017.

Singapore expecting steady pipeline of IPOs in 2017

In 2016 there were five IPOs on Singapore’s Mainboard and 11 IPOs on Catalist, raising S$2.3bn in total, compared to 13 IPOs in 2015, raising S$512m. There were no mid-market IPOs (between S$100m and S$300m) in 2016, but there were five large transactions involving listed companies with market caps of S$300m-plus. There were six mid-market IPOs in 2015.

Top IPO sectors for Singapore were industrial goods with five IPOs, followed by commodities and REITs which each saw three IPOs.

Singapore is seeing renewed efforts from both advisers and the Singapore Stock Exchange to secure the IPO pipeline. A steady flow of IPOs is expected during 2017, especially in the REITs, healthcare and technology sectors, from both local and foreign companies. If markets remain favourable, then a stronger performance than 2016 is anticipated.

Q4 2016 best quarter for Australian IPOs in five years

There were 29 IPOs for mid-market companies in the last quarter of 2016 in Australia, the most active quarter in the last five years. These raised AUS$439m on the Australian Stock Exchange (ASX) in the quarter – the highest since the same period in 2015. Over the course of the year, the number of IPOs increased by 15%².

Q4 is historically the most active quarter for IPOs, but the peak at the end of 2016 was also helped by the Australian Stock Exchange attracting a wider range of industries, particularly IT, as well as an improvement in mining-related activity. IT was the most active sector over the year and in the final quarter of 2016 there were seven IPOs in the IT sector, closely followed by the mining sector with six.

The average IPO fundraising was AUS$15.1m, a 37% decrease on the previous quarter and 17% down on the average of AUS$18.2m over the previous 12 months.

Political agenda dictating future UK IPO performance

In January 2017 AIM, the London Stock Exchange’s market for smaller companies, reached a historic milestone of £100bn in total funds raised since its inception.

There were 64 admissions to AIM in 2016, of which 12 were in Q4. This compares with 61 admissions in 2015. Sectors with the largest number of IPOs were technology with 12 listings, the financial sector with 10, consumer services with 9, healthcare with 8 and industrials with 7³.

Notwithstanding the prevailing market uncertainty around Brexit, the £1,519m raised on AIM, during Q4 2016, was the highest quarterly amount raised in 2016 (the figure for Q3 2016 was £1,319m and for the whole of FY 2016 totalled £4,766m), which left total funds raised on AIM since inception close to the £100bn mark.

The strong aftermarket performance of 2016 AIM IPOs suggests continued investor interest in well-priced, strongly positioned and well-managed businesses. There is likely to be an uplift in market activity if the political agendas, both in Europe and the US, take more business friendly and clearer directions.

Weakest year for US IPOs since economic crisis

Meanwhile, in the US, 2016 was the worst year for IPOs since 2008, with the lowest proceeds raised from IPOs since 1990. In 2016, there were 88 middle market IPOs issued on US exchanges, raising US$10.6bn. In Q4 2016, there were 23 middle market IPOs, raising just US$2.9bn. In comparison, in 2015 there were 137 mid-market IPOs, with total funds raised of US$18.9bn⁴.

The most active industry sectors for US middle market IPO activity in 2016 were healthcare and life sciences with 37 IPOs, technology with 18 and the energy & utilities sector with 7.

The continued availability of private capital and the appetite for growth through mergers and acquisitions is expected to continue to exert downward pressure on IPO and follow-on activity in 2017. Until there is greater clarity around the policies of the Trump administration, and the domestic and global reaction to those policies, it is difficult to predict their impact on US IPO transaction activity with any degree of certainty. Instead of riding the wave of increased IPO activity, in 2017 middle market companies and investors may find that market conditions suggest a more opportunistic approach to capital raising versus going public.

 

Footnotes

¹ For the purposes of this article mid-cap IPOs are defined as those on the Shen Zen Growth Enterprise and SMEs boards, usually with between 30 and 100 million tradeable shares.
² IPOs with an enterprise value of less than AUS$200m at the time of listing.
³ Defined as companies listing on AIM. ⁴ IPOs issued by companies with between US$10m and US$2bn in market value post-IPO.

 

CONTACTS
For more information, please contact:

Ms Flora Luo
Executive Director, Nexia China
floraluo@nexiats.com.cn

Ms Grace Lui
Director, Valuation and Transaction
gracelui@nexiats.com.sg