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A woman walks past the Japan Tobacco Inc. (JT) headquarters in Tokyo. The Japanese government’s $7.7-billion stake sale in Japan Tobacco was one of the three largest equity offerings in the world in the first quarter of 2013. (TOSHIYUKI AIZAWA/REUTERS)
A woman walks past the Japan Tobacco Inc. (JT) headquarters in Tokyo. The Japanese government’s $7.7-billion stake sale in Japan Tobacco was one of the three largest equity offerings in the world in the first quarter of 2013. (TOSHIYUKI AIZAWA/REUTERS)

Global IPOs rise on stock market rebound Add to ...

Global equity fundraising rose 24 per cent in the first quarter from a year ago, as strong markets and easing concerns about the economy encouraged more companies to raise capital through initial public offerings and other capital market transactions.

Private equity-backed companies lined up to list shares as U.S. stock markets reached record highs, helping boost U.S. IPO volumes by 65 per cent so far this quarter. Bankers expect more investments from the buyout boom years of 2006-2007 to crowd the IPO market this year.

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Investor confidence is also returning after political and economic uncertainties stymied capital raising in 2012, particularly in Europe. While some risks remain, including political uncertainty in Italy stemming from an inconclusive election last month and a bailout deal for Cyprus, stock markets have been fairly resilient in the region.

Global equity fundraising, which includes IPOs and secondary offerings, rose to $183-billion (U.S.) so far this quarter from $147-billion in the same period last year, according to Thomson Reuters data as of March 27.

IPO volumes rose 37 per cent to $21-billion, as the surge in U.S. activity and a rebound in European volumes offset a 56 per cent decline in Asia, the data showed.

“It’s been a very active quarter as investors are rallying behind an economic recovery,” said Philip Drury, co-head of equity capital markets for the Americas at Citi. “We think you are going to see a meaningful increase in the number of critical mass IPOs in the second and third quarter as market conditions are very robust, and we are advising clients to access the window of opportunity.”

Private equity firms looking to sell portfolio companies are driving much of this activity in the United States across various sectors like industrials, retail and consumer, and healthcare.

Large private equity-backed companies planning IPOs later this year include eye care company Bausch & Lomb Inc, technology products retailer CDW Corp, theme park operator Sea World Parks and Entertainment and testing services company Quintiles Transnational Corp.

“Public market investors are more comfortable today with leverage on IPOs because their outlook on the business environment is more optimistic than it was in the past,” said Mary Ann Deignan, head of equity capital markets for the Americas at Bank of America Merrill Lynch.

“That leads us to be able to go to financial sponsors and give them new advice about companies that we told them a year ago they couldn’t take public.”

U.S. technology IPOs, meanwhile, comprised a mere 8.8 per cent of IPO activity, compared with 34 per cent in the year prior, as fervor for the sector tempered after Facebook Inc’s $16-billion public debut in May 2012 fell flat.

In the absence of deals that hit the market in 2012, including Facebook and business software maker Workday Inc., the majority of technology offerings this year are likely to be smaller companies in sectors like business software, advertising technology and data storage, bankers say.

“There are a ton of (technology) companies out there with revenue of about $75-million to $125-million that are growing at least 20 per cent a year and are profitable,” said Paul Deninger, a senior managing director at Evercore Partners Inc. “Those are the deals that are going to emerge this year.”

In the first quarter of this year, Goldman Sachs Group Inc topped the global ranking of equity underwriters with 86 deals accounting for proceeds of $23-billion, up from No. 2 in the first quarter of 2012. Morgan Stanley followed as No. 2 and Citigroup as No. 3.

Goldman Sachs was also the leader for global IPOs, raising $2.7-billion for clients, followed by Deutsche Bank and Citigroup.

In the U.S., which made up 40 per cent of global IPO activity for the quarter, Barclays ranked as the No. 1 underwriter for the quarter. Goldman followed as No. 2 and Citi as No. 3.

In Europe, improving stock markets encouraged a string of companies to test the water for initial public offerings, which began to show signs of a pickup in the final quarter of 2012 after years of subdued activity due to the financial crisis.

Housebuilder Crest Nicholson Holdings PLC and insurer esure Group PLC went public in London, which saw the bulk of activity, while German real estate group LEG Immobilien AG had Europe’s biggest listing of the quarter when it raised €1.3-billion in Frankfurt.

“We’ve now seen a number of companies successfully getting IPOs done and other issuers ... could look to take advantage of the momentum and revisit deals that they put on the back burner,” said Klaus Hessberger, co-head of EMEA ECM at JPMorgan Chase & Co.

“Investors are interested in Europe again and we’re seeing U.S. money coming into European equities… The crisis isn’t over, but the market and sentiment have come a long way compared to where they were 12 months ago.”

But bankers caution activity is still far from returning to normal.

“There is a reasonable pipeline, but deal-making activity is not at a high level. There are deals to come, but I think right now people are still looking at the market with sobriety,” said Craig Coben, head of EMEA ECM at Bank of America Merrill Lynch.

In the second quarter, Dutch telecom group KPN is expected to complete a planned €3-billion rights issue, while German chemical company Evonik plans to float in April.

Among others reported to be preparing to float in the coming months are Germany’s biggest real estate firm, Deutsche Annington, which could yield as much as €1.5-billion, and Cinven-owned British insurer Partnership Assurance.

Equity issuance in Asia outside Japan rebounded as companies took advantage of surging share prices to raise $46-billion in stock and convertible bond offerings, 6 per cent more than a year earlier.

The three largest equity deals in the world so far this year were all in Asia, including the Japanese government’s $7.7-billion stake sale in Japan Tobacco Inc, Minsheng Banking Corp’s $3.2-billion convertible bond and the $3.1-billion sale of new shares by China Petroleum & Chemical Corp (Sinopec).

The $1.3-billion IPO of Mapletree Greater China Commercial Trust underscored a trend expected to continue for the remainder of the year, with yield-hungry investors looking to boost returns with global interest rates seen low for the foreseeable future.

“Interest rates remain very low so investors continue to search for yield,” said Jonathan Penkin, head of equity capital markets for Asia ex-Japan at Goldman Sachs in Hong Kong. “High-quality assets with a yield element are all near or at the top of their historical trading ranges.”

Still, IPO activity sank 56 per cent from last year to $3.3-billion, making it the slowest start of the year in the region since 2009. Despite the downturn early into 2013, bankers expect activity to pick up, with listings from motor sport racing company Formula One and Alibaba Group, and multibillion-dollar offerings from China Galaxy Securities, Sinopec Engineering and several medium-sized Chinese banks.

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