EMEIA IPO market sees ‘much stronger momentum’ in fourth quarter, says EY
IPO activity across Europe, the Middle East, India and Africa (EMEIA) surged in the fourth quarter of 2020 as investors backed equity stories boosted by the pandemic, according to new data from EY.
Between October and mid-December, the EMEIA region saw 120 IPOs, more than double the 55 recorded during the whole of the third quarter, says EY. IPO value also increased to $16.1 bn from $7.5 bn.
The data covers both completed IPOs and those expected to be finalized in December.
‘We see much stronger momentum in Q4,’ says Martin Steinbach, EY EMEIA IPO leader. ‘That’s because the pandemic has accelerated underlying trends, especially around digital and technology-driven equity stories. The window of opportunity is now.’
Major EMEIA region IPOs since October include reinsurer Conduit’s £800 mn ($1.08 bn) listing in London and the debut of e-commerce firm Allegro in Warsaw, which raised 9.2 bn zloty ($2.5 bn) in Poland’s biggest ever IPO.
The Covid-19 pandemic slowed listings activity globally during the first half of the year, before Asia and the Americas mounted a stunning comeback in the third quarter. EMEIA, by contrast, saw only a modest rebound in Q3. The region is heavily ‘export-driven,’ explains Steinbach, so has struggled due to uncertainties related to Covid-19, geopolitical tensions and the trade war between the US and China.
The EMEIA region’s momentum in the fourth quarter bodes well for activity in the first half of next year, however. Technology firms in particular are reported to be lining up to go public, keen to take advantage of sky-high interest from the investment community.
Steinbach says he sees continued interest for further tech and healthcare listings, although investors will be wary of a potential market correction given how much stocks have rallied in recent months.
Markets will also be sensitive to the outcome of the Brexit negotiations, which remain delicately poised with just a few weeks left until the end of the UK’s transition period with the European Union. At that point, if no deal has been agreed, the two parties would start to trade on World Trade Organization terms.
‘That has to be on the radar, especially for those that want to list cross-border into the UK,’ says Steinbach.
He also expects interest in European companies from the raft of special purpose acquisition company (Spac) listings that took place in the US during 2020. Spacs, also known as blank cheque companies, raise money and then have a set amount of time – normally two years – to find a private company to merge with. The process offers a route for private companies to raise capital and go public without some of the risks of a traditional IPO.
‘Merging with a Spac, especially if volatility really rejoins the market, is an increasingly valid option for IPO-bound companies,’ says Steinbach. ‘I expect more mergers from Spacs involving EMEIA companies.’
Looking at IPO activity from January to mid-December, the EMEIA region recorded 252 IPOs, a 4 percent increase on 2019 despite the challenges thrown up by the Covid-19 pandemic, according to EY. Deal value, however, was down 43 percent at $33.9 bn.
Globally, the EMEIA region was significantly overshadowed in 2020 by the Americas and Asia-Pacific. The Americas region saw 274 IPOs raising $96.9 bn, while Asia-Pacific attracted 796 IPOs raising $132.5 bn, according to EY data.
The global IPO market this year has been supported by a rapid shift to virtual processes, notes Steinbach.
‘Formerly, you were on the road, say, eight to 10 days,’ he says. ‘You traveled by plane and taxi and it took a lot of time to meet investors. Now, due to the fact that we have these virtual tools, the risk that the market moves out of the book-building range was narrowed to two to three days.’