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Buoyant start to the year for IPOs led by new launch frenzy in Asia-Pacific
Global initial public offering (IPO) markets kicked off 2017 with gusto, leading to the highest first quarter number of share sales since before the financial crisis, according to research from EY released on Tuesday.
After the strong start to the year, which counted 369 deals launched globally to raise total proceeds of $33.7 billion, the outlook for the rest of the 2017 remains robust, according to Martin Steinbach, global IPO leader at EY.
"We see that the runway is established for the remainder of the year. This is backed by strong economic fundamentals, low volatility and still high index levels which create a positive sentiment for the IPO market for the remainder of the year," observed Steinbach, speaking on CNBC's Squawk Box on Tuesday.
While several equity market indices set record highs during the quarter, Steinbach said that valuations achieved by many debut public equity market issuers kept pace over the period.
"The price is always a mix of many things - it's the right team, the right and the right timing and we see that the timing is right for many companies to join the market," affirmed the EY executive.
Asia-Pacific, led by Greater China, took the crown as the most active new launch market, boasting 70 percent of total global IPOs by number and 48 percent by proceeds. On the value side, U.S. markets roared ahead, with a total of $14.3 billion worth of deals helping the country to secure four of the spots in the list of top ten largest launches done in the first quarter.
Driven by the $3.9 billion raised by Snap in its early March launch on the New York Stock Exchange, tech companies dominated the global rankings.
"It's a good sign for the market that for tech companies the market is still open and we see more to come," noted Steinbach, with his team's research highlighting that the tech sector had garnered around a fifth of the quarter's total global IPO proceeds.
One market which didn't enjoy such a boom was the U.K., struggling in the wake of heightened investor anxiety and uncertainty over Brexit. The country saw around a 25 percent decline in the number of IPOs, according to the EY report.
With regards to the sources of IPO candidates, Steinbach emphasized that huge regional differences continue to play out in the ongoing battle between M&A and IPOs. Referring specifically to the route to exit for private equity firms (PE) seeking to offload portfolio companies, he pointed out that IPOs are still presenting an attractive option for U.S. PE firms.
"If you look to the sources of IPOs in America, they are coming from these PE portfolios…they account for around 50 percent," noted Steinberg.
"If you move to Europe, it's around 15 – 20 percent on average. If you go to Asia-Pacific…it's really a tiny portion that comes from PE and VC," he added.
Some of the higher profile IPOs this quarter, including Snap (NYSE: SNAP) and Canada Goose (Toronto Stock Exchange: GOOS-CA), have seen their share prices dip following launch day spikes, yet venture capital firm IVP's General Manager Sandy Miller told CNBC on Monday that he remains sanguine about the price activity.
"You don't want to see stocks double or triple on the IPO. Snap and others are up in a nice pattern and I think [they] set the stage well," according to Miller.
The veteran venture capitalist added that he expected both this year and next to remain robust for IPO activity.
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