2010 IPO Outlook: Boom Or Bust?
In 2009, companies around the world raised US$892bn in initial public offerings (IPOs), which was 41% higher than in 2008.
Of that amount, a sizeable US$314bn was raised in Q4 2009, creating the impression that the year-end momentum would likely spill over into the new year. Indeed, a variety of banks and analysts produced bullish 2010 IPO outlooks.
Yet these forecasts were more based on momentum than a good grasp of fundamentals.
One misperception had to do with bullish expectations of private equity-backed IPOs, based on the idea that private equity was sitting on investments it could not offload during the crisis and was desperate to exit in the context of improved market conditions.
However, two signs indicated that the prospects were not that good. First, one third of Q4 2009 private equity-backed IPOs were priced below their target range. Second, a number of private equity funds had already chosen dual track listings in Q4, whereby they prepared for an IPO but also approached strategic investors with a view to an M&A transaction in the event of unsupportive market conditions.
The other major misperception was the assumption that the process whereby Asian IPOs upheld the global IPO volume in 2009 would continue in 2010.
Chinese regulators have already set limits on pricing of IPOs and vetoed 34 new issues this year.
In 2009, investment in Chinese IPOs was largely another way of going long China’s strong macroeconomic story. However, with the Chinese economic picture looking less convincing in 2010, we should see a return to investor discrimination on the basis of price and company specifics, resulting in lower Asian IPO volumes.
From a global market perspective, instability is set to remain a negative influence on IPOs. With the sovereign debt crisis, we have moved into the second leg of the systemic crisis which started with the banking crisis of 2008. Hence, instability is likely to prevail over the course of 2010.