The year kicked off on a cautiously optimistic note with global initial public offering (IPO) volumes down by 7% y-o-y in 1Q2024, says consultancy firm, EY.
“The IPO market thus far in 2024 has shown signs of vigour, with an upswing in IPO activity. Despite the restrained overall market activity in previous years, there's an uptick in enthusiasm from both IPO issuers and investors, hinting at shifting market dynamics and a more welcoming landscape for public listings,” it adds.
During the quarter, the global IPO market saw 287 deals that raised US$23.7 billion ($31.98 billion). Though volume fell, the proceeds raised marked a 7% improvement on a y-o-y basis.
Majority of the key IPO markets in the 1Q2024 also witnessed a significant number of newly-listed companies seeing their current share prices surpassing their offer prices.
The trend, according to EY, could mean improving valuations and pricing levels, which in turn, reflects a growing confidence among issuers and investors.
In Asia-Pacific (APAC), IPO activity was subdued with 119 deals raising US$5.8 billion in proceeds, which fell by 34% and 56% y-o-y respectively. The decline was particularly sharp in Mainland China and Hong Kong. The number of deals in these two regions fell by over half y-o-y with the total deal size declining by nearly two-thirds, says EY, adding that both markets saw a consistent decline in IPO activity over the past few years.
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As at EY’s statement on April 8, Hong Kong saw only 10 IPOs with two exceeding US$100 million in deal size, marking a historic low by proceeds since 2010. Japan was the only market within the APAC region to see a slight in deal count in the 1Q2024. The country’s Nikkei Index also hit an all-time high in February as it surpassed its all-time high of 38,915 on Feb 24, a mark set on Dec 29, 1989.
IPO activity in Southeast Asia was similarly lukewarm with 38 deals raising US$1.0 billion. This is down from the 51 deals that raised US$1.4 billion in the same period a year ago. Indonesia, Malaysia and Thailand were the exchanges that were the most active in Southeast Asia in 1Q2024. Indonesia saw 20 IPOs raising US$224 million while Malaysia saw nine IPOs that raised US$279 million. Thailand saw six IPOs that raised US$273 million.
The Philippines, Singapore and Sri Lanka saw one IPO each raising US$202 million, US$20 million and US$2 million respectively.
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“The IPO market in Southeast Asia was subdued as high interest rates and inflationary pressures continued to impact the confidence levels of both investors and issuers. This challenging economic environment has prompted companies in the region to recalibrate their strategies, placing a heightened emphasis on achieving profitability,” says Chan Yew Kiang, EY Asean and Singapore IPO leader.
“As inflationary pressures begin to subside, the anticipated reduction in interest rates is likely to create a more favorable climate for IPOs. A strong performance from the global IPO markets will encourage Southeast Asian companies that have been hesitant to go public to re-evaluate their position,” he adds.
The Americas, on the other hand, saw strong IPO activity with 52 deals raising US$8.4 billion in proceeds in 1Q2024, up 21% and 178% y-o-y. Each of the top seven deals during the period raised over US$500 million, compared to just the one in the 1Q2023.
“The US, after experiencing a 20-year low in proceeds in 2022, has finally witnessed a noticeable recovery in the first quarter of the year, riding on the wave of the market rally from last year,” observes EY.
The EMEIA – or Europe, the Middle East, India and Africa – markets saw an impressive growth with a total of 116 IPOs launched, raising US$9.5 billion, up 40% and 58% y-o-y. The surge, which was attributed to larger average deal sizes from IPOs in Europe and India, put the region in first place in global IPO market share by proceeds since 4Q2023.
India has also rapidly gained prominence since 2019, especially in the number of IPOs. The country is now seen as a “standout performer”, says EY.
Amongst the IPOs, EY has also noticed significant growth within the artificial intelligence (AI) sector with the majority of AI and AI-related businesses still in the seed or early stage of venture capital (VC) rounds.
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“This suggests there could be a surge in IPOs in future years as these companies mature in the private domain before making a public debut,” the firm adds, noting that there were 10 private equity (PE)-backed IPOs in the 1Q2024. Five of these IPOs were featured among the top 10 global IPOs.
IPO prospects must remain ‘flexible’
IPO prospects must remain “flexible” and “[be] prepared to seize the right moment for their public debuts” says George Chan, EY global IPO leader. The advice comes amid this period of “unchartered territory” as 2024 unfolds, he adds.
“IPO candidates are influenced by the recent pivot in investors' preference toward proven profitability in an altered interest rate landscape, and are doing this while facing the intricate dynamics of an intensified geopolitical climate and the buzz around AI,” Chan notes.
Despite the optimism reflected in the first quarter’s numbers, EY sees that the global economy will remain on a soft growth trajectory in 2024. During the year, developed markets are likely to see modest growth while emerging markets are anticipated to stay on a firmer growth path.
Stock markets have already priced in the expectation of rate cuts in various major economies, says EY.
Election year
“Just as investors and IPO candidates adapt to the new norm of higher interest rates and reduced liquidity, they will also need to navigate through additional layers of complexity in the geopolitical and global election landscape in the IPO market,” the firm adds.
There are a number of elections in 2024 that have already taken place or are scheduled to take place. Taiwan was one of the first places to go to the polls while Indonesia’s elections took place in February. India is slated to go to the polls soon, starting April 19. The United States, too, will hold its elections in November this year.
“As elections this year amplify uncertainty, IPO candidates will need to closely monitor election outcomes and assess how specific policies could affect stakeholder interests and re-evaluate IPO strategies and timing as necessary,” EY adds.
