The Zhitong Finance App learned that EY released a global IPO trend report for the second quarter of 2024. The report shows that the differentiation of global IPO activities has intensified, the American region and the EMEIA region are growing strongly, and the Asia-Pacific region is slowing down. Demand for stock issuance in the American region and EMEIA was strong in the first half of 2024, thanks to good stock market performance, increased IPO valuations, and rising investment enthusiasm. This encouraging market environment has prompted growing companies to go public, driving a significant increase in IPO activity.

At the same time, the average transaction size of the American region and EMEIA region has also increased significantly, driven by the listing of many well-known large companies. The amount of IPOs raised in the American region increased 67% year over year. In the first half of 2024, the EMEIA region successfully recovered to its 10-year average IPO transaction amount level. The American region returned to 70% of its 10-year average, while the Asia-Pacific region was less than 30%.

In the first half of 2024, the EMEIA IPO market experienced a significant recovery. The share of IPOs in the world reached the highest level since the 2008 global financial crisis. The number of transactions and transaction amounts accounted for 45% and 46% of total global transactions, respectively. Among them, the European market has ushered in a number of large-scale IPO transactions, which shows that as valuation levels rise and investors' enthusiasm to buy new shares heats up, more large companies believe that the current market environment is forming an attractive IPO window.

India has experienced significant growth, and its share of global IPOs has risen sharply to 27% from 13% in the same period last year.

However, the Asia-Pacific region, which was once a hot spot for IPOs, was affected by many adverse factors such as geopolitical tension, elections, economic slowdown, interest rate hikes, and weak market liquidity, and investors tend to be cautious, and market popularity has been dampened. The Asia Pacific region's share of global IPO funding dropped sharply, from 63% in the first half of 2023 to 20% in the first half of 2024.

Significant growth in private equity/venture capital-backed IPO deals in the Americas and EMEIA

Globally, IPOs supported by large private equity (PE) /venture capital (VC) have increased dramatically, and the share of capital raised jumped from 9% in the first half of 2023 to 41% in the first half of 2024. This trend is particularly evident in the Americas, where PE/VC supported IPO transactions account for 74% of total transactions in the region. In Europe, large PE-supported IPOs are active, and the share of transaction amounts in total transactions in the region rose sharply to 46% from 29% in the previous year, highlighting the vitality of the European PE-supported IPO trading market.

Investors are enthusiastic about the strong performance of the IPO market, and the return on the IPO outperformed the index benchmark

Over the past two years, investors' focus on IPOs has changed markedly, paying more attention to the financial sustainability and profitability of newly listed companies. This reflects a more cautious attitude in the face of tight monetary conditions and market uncertainty.

Faced with this shift in investor attitudes, companies considering going public place more emphasis on their revenue and profitability metrics, as well as plans to achieve sustainable growth. The net profit margin indicators for IPO companies for the first half of 2023 and 2024 show significant improvements in performance in most regions. In China, regulators have introduced stricter listing requirements to improve the quality of listed companies and protect investors' rights.

At the same time, US IPOs cover a wider range of companies, including emerging technology and medical companies, as well as mature and growing companies. This diversification is a key factor driving a sharp increase in the average transaction size and a significant increase in the median net profit margin in the US market.

From a buyer's perspective, investors are gradually recognizing the quality and scale of this year's newly listed companies, and are more willing to allocate capital to these opportunities, creating opportunities for the IPO market to obtain significant returns. In the first half of 2024, the IPO performance of most major global markets surpassed the benchmark index. The increase in the exercise of over-allotment rights and the dynamism of post-listing stock prices proved its fundamental strength, issuance quality, and market confidence in its future prospects. For companies considering going public, the growing momentum to invest in IPOs is a positive sign that the market environment is open to, support, and potentially bring profit opportunities.

In the first half of 2024, the industrial, technology and materials industries led the IPO activity; among the major industries, the US and Indian markets dominated

In the first half of 2024, the industrial, technology and materials industries led global IPO activities, with the Indian market dominating the trading volume. In terms of funding, the technology, health and life sciences, and industrial sectors are among the top, with the US market attracting most capital inflows. As home to many of the world's leading tech and healthcare companies, the US has a strong startup ecosystem. Driven by a favorable market environment, expectations of interest rate cuts, and innovation in the field of artificial intelligence, IPO transactions in the technology and healthcare industry have increased dramatically.

Compared with the same period last year, in the first half of 2024, there were many major IPOs in the retail, finance, media and entertainment, health and life sciences, and telecommunications industries. Some well-known companies, such as Galderma Group AG in the health and life sciences industry, and Amer Sports and Puig in the consumer industry, became the most notable listing cases, reflecting the increased confidence of heavyweight market players. Driven by the listing of a number of asset and wealth management companies, including the listing of an asset management company with a transaction volume of 2.5 billion US dollars in Amsterdam, the financial industry became the only industry to achieve growth in both trading volume and transaction volume in the first half of 2024.

As market expectations that the Federal Reserve (Fed) may ease interest rate policies this year heats up, high-growth and capital-intensive companies, including those supported by venture capital firms, may usher in a new wave of listing. Meanwhile, the ongoing energy transition is driving growing demand for critical materials such as copper, lithium, nickel, and rare earths. Companies involved in these basic resource businesses may seek to go public, using investors' growing interest in the green energy revolution to raise capital.

As the market shifts from post-pandemic austerity to optimism about interest rate cuts, Unicorn IPOs revive hope

Unicorns are usually disruptive private companies, usually established less than 10 years ago, valued at the level of 1 billion US dollars, and can completely change the market or entire industry.

With the sharp rise in capital requirements since 2022, the amount of financing for startups has declined significantly over the past two and a half years. As the market environment changes, many startups that have successfully raised large amounts of capital also require additional financing after the initial capital has been exhausted. Their increased demand for further investment is putting pressure on capital markets, forcing investors to reevaluate their strategies and be more careful in choosing which venture investments to invest in. As a result, what was once favorable to startups has given way to a more challenging and prudent financing environment. Following a record high in 2021, high-growth unicorn companies that burn money have experienced drastic changes in terms of IPOs. Interest rate hikes, shifting buyer preferences, and increased competition are forcing unicorns to reevaluate their valuations, listing strategies, and timelines. To attract the necessary capital inflows, they are also expected to demonstrate both financial stability and growth potential. In 2021, more than 80 unicorn companies went public, of which nearly 80% came from the US. However, this number dropped to less than 20 in 2023, and was even smaller in the first half of 2024.

As monetary policy begins to shift towards easing, borrowing costs are expected to fall, which may boost venture capital investments and give more startups a chance to become unicorns. At the same time, as the investment environment adjusts to a healthier “normal” with reasonable valuations, unicorn IPOs will attract a wider range of investors, including more conservative investors, thus enabling these companies to achieve more stable and sustainable growth.

Among companies preparing for IPOs, tech unicorn companies account for about half of the total, followed by the financial, industrial, and consumer industries. As investors become increasingly interested in the fields of artificial intelligence and machine learning, and startups focusing on these two fields are preparing to go public, AI unicorn companies are particularly notable for their major funding rounds. Strong growth and significant capital injections in the AI vertical have highlighted its important position in the current unicorn business landscape, and some companies are expected to continue to successfully go public in the near future.

From a geographical perspective, almost half of the world's unicorn companies preparing for IPOs are from the US, which reflects America's dominant position in the field of startups. Mainland China followed with 15%, showing that its influence is increasing day by day, and the technology industry is growing rapidly. Indian unicorn companies also performed well, accounting for 7% of unicorn companies preparing to go public. The high concentration of unicorn companies in these countries shows that these countries have strong ecosystems that support innovation, financing opportunities, and a favorable regulatory environment, making them the first choice for startups seeking to go public.

Global elections have heightened uncertainty about the impact of specific policies on IPOs

Investors and IPO-ready companies must deal with complex geopolitical and electoral environments while adapting to changing interest rate policies. This year, countries or regions covering more than half of the world's population and accounting for nearly 60% of global GDP will hold elections, including many geopolitically important regions. A potential change of this magnitude could be extremely uncertain. This situation has also been exacerbated by the resurgence of “big governments” in some countries. “Big government” means that countries play a more active role in shaping the economy, including large-scale fiscal spending and targeted support for specific sectors of strategic importance.

Historically, during the election year, the US presidential election had little impact on the country's IPO market, apart from possibly suppressing IPO activity during the November voting month. However, in the years following an election, IPO activity tends to increase significantly. This trend shows that post-election policy changes, economic initiatives, and stable market sentiment can generally create a more favorable environment for IPOs.

Policies introduced during or after the election appear to influence IPO decisions in some industries. The United States' 2012 “JOBS Act” (JOBS Act) simplified the listing process for small companies through the “IPO on-ramp” (IPO on-ramp) and promoted listing activities. The 2015 “Digital India” (Digital India) initiative fueled a boom in fintech IPOs, and subsequent digital reforms have increased the industry's fund-raising appeal. Similarly, tech IPOs tripled after France's 2017 election pledged to create a “startup nation.”

As the 2024 global election supercycle reaches its climax, election results are likely to trigger changes in government spending, debt levels, interest rate policies, currency values, and global supply chains. In industries that are heavily regulated or highly dependent on government policies, businesses are likely to experience greater turmoil during and after elections. Increased debt burdens may also force the government to seek new revenue streams, increasing the possibility of changes in corporate taxation, which may affect the company's earnings and growth potential. Companies preparing for an IPO must keep a close eye on the election situation, assess the potential impact on stock prices and stakeholders, and re-evaluate their IPO strategy and timing if necessary.

Geopolitical turmoil presents both challenges and opportunities, affecting the IPO market

Geopolitical tensions and events as well as political instability may affect the IPO market, leading to increased uncertainty and increased volatility in the financial market and curbing investor sentiment. New regulations or restrictions on foreign investment will narrow the range of options for companies seeking public listing and hinder their growth prospects. Meanwhile, countries such as India and Indonesia (both are holding elections in 2024) are using global tension and trade disputes to stimulate economic development, including attracting greenfield investment, boosting capital market growth, and stimulating IPO activities.

According to the “EY 2024 Geostrategic Outlook” (EY 2024 Geostrategic Outlook), the level of global political risk has risen markedly. In particular, since the Russian-Ukrainian conflict broke out in 2022, the level of political risk has remained high. Although companies initially paid less attention to geopolitical risks, as the Russian-Ukrainian conflict broke out, this attention increased dramatically, and companies paid more attention to geopolitical issues than in the past. The EY CEO Survey (EY CEO Survey) released by EY in January 2024 also showed that 98% of CEOs plan to adjust investment strategies based on geopolitical issues.

In an environment of policy changes and geopolitical instability, companies interested in going public are carefully weighing a wider range of listing options. One example is Shein, a fashion retailer founded in China, considering listing in London rather than New York. Wherever Shein eventually went public, the move highlights the impact of increased regulatory scrutiny and geopolitical tensions on corporate strategy and market preferences.

While companies are coping with the geopolitical environment, stock markets such as London are positioning themselves as alternative listing locations for popular global companies, seizing the opportunity to revive the London capital market. These changes are affecting not only the company's own development path, but also the global IPO landscape.

As the global election supercycle approaches, the possibility of regulatory and policy changes increases, forcing companies to prepare for a range of possible geopolitical events. In view of the expanding range of market options, companies preparing for IPOs should continue to strengthen their capabilities, enhance their competitive advantage, and explore various strategic options to seize the opportunities brought about by geopolitical uncertainty.

IPO market outlook for the second half of 2024

In the middle of the year, the outlook for the IPO market seemed bright. Strong market performance, reduced volatility, and lower inflation have strengthened expectations for a continued recovery. Successful IPOs in the first half of the year also further boosted market popularity. The profit margins of these companies that successfully completed IPOs increased, and their stock prices performed well after listing.

In the next few quarters, three key issues will have a major impact on the global IPO market: the schedule of interest rate cuts by central banks, the escalation of geopolitical conflicts, and the super election cycle.

Global inflation continues to cool in an environment of varying economic environments and levels of inflation. The central bank's easing cycle is likely to be out of sync, some European and emerging markets may take the lead, and the Federal Reserve may be more hawkish. When central banks, including the Federal Reserve, switch to cutting interest rates, investors are expected to transfer funds in search of higher returns. The shift is expected to increase liquidity in stock markets, emerging markets, and high-growth industries such as technology, health, and life sciences. As a result, many companies are likely to enter the open market, and company quality, valuation, and investor demand will guide investment choices. IPOs supported by private equity are expected to increase, and as the interest rate cut cycle continues, venture capital-backed companies will follow suit. Companies may also list at lower free-circulation market capitalization, speed up the IPO schedule, and choose other financing methods (such as convertible bonds) to take advantage of the fleeting market window in an ongoing turbulent geopolitical and political environment.

Geopolitical tensions may force companies to explore other IPO markets, avoid high-risk regions, and seek a more favorable regulatory environment. This transformation may spawn new financial centers and change the pattern of the IPO market. At the same time, potential IPOs need to assess the medium- to long-term impact of the election results on market stability and investor confidence. It may take months or even years for new government policies to take effect, so when the window is scarce and short, it is wise to carefully weigh the pros and cons of acting now or waiting for time.

George Chan Chen, EY Global IPO Managing Partner: “The global IPO market reflects a broader economic environment, while also seeking a new balance in the complex geopolitical and electoral landscape. As the pendulum of opportunity tilts towards developed Western economies, the Asia-Pacific region is facing multiple challenges. This is a test of resilience. Companies considering going public need to show greater adaptability and resilience in order to make smart strategic decisions in an ever-changing IPO environment. ”