China, technology and private equity are likely to drive IPO activity over the next 12 months, according to the Ernst & Young Institutional Investor IPO survey.
Investors believed a handful of IPO markets worldwide would show recovery by the end of 2009.
China (75 per cent of respondents), India (57 per cent) and Brazil (57 per cent) were highlighted as the most likely with the US (31 per cent) and Singapore (30 per cent) suggested as other possibilities.
Ernst & Young’s quarterly data has shown that this trend has already started in Q3 2009 and is likely to continue in Q4.
For many of the developed markets like the UK, Australia and Germany (all 57 per cent) and Canada (62 per cent) investors believed domestic IPO markets will start to recover between Q1 2010 and Q2 2011. A surprisingly large minority in many major markets – in France and Japan up to 42 per cent – of investors thought a recovery could be more than 18 months away.
Greg Ericksen, global vice-chair, strategic growth markets at Ernst & Young, says: "Recent IPO activity in the last two quarters confirms that some IPO markets are making an early recovery, notably in the emerging economies of China, India and Brazil. China-based companies in particular have been significant in driving recent capital market activity, with more deals than North America and Europe combined. Although, the rest of the world appears to be picking up, full recovery will take longer and we don’t expect markets to stabilize for another 12 months."
Forty-nine percent of investors believe that the technology sector will lead IPO recovery globally, followed by financial services (43 per cent), the oil and gas sector (38 per cent), metals and mining (35 per cent), consumer and retail (32 per cent).
Ericksen says: "Technology companies often lead IPO recovery because they are perceived to have good market growth opportunities. While it is not surprising that investors show an interest in mining and oil companies – given the rise in asset prices – it was unexpected to see a similar focus on financial services companies. However, we’ve started to see financial services companies stabilise. Those that have survived the economic downturn are now in a better position to attract investors than they have been for sometime."
Investors forecast a variety of different types of companies in different jurisdictions, looking to float over the next year. Private equity backed companies are predicted to go public first in the US, according to 47 per cent of the respondents, UK (45 per cent), France (35 per cent) and Germany (33 per cent).
The top financial factors for making an IPO investment were debt to equity ratios, highlighted by 63 per cent of investors surveyed. This was a dramatic rise from ninth position in the 2008 survey, to first position this year. Other top factors include EPS growth (59 per cent) and sales growth (55 per cent).
"Investors are looking for less risky investments, which mean that they are more concerned with debt to equity ratios and invest in companies that performed well in the downturn and are able to service their interest and debt. When the market returns, investors will require a track record of significant growth," says Ericksen.
