Private Equity, Public Exits Q4 2016

Macro concerns and geopolitical uncertainty weighed heavily on the global IPO markets last year. Global IPO activity declined 13% by volume and 31% by value, making it the quietest year for IPOs since 2012. PE-backed deals in particular saw sharp declines, with proceeds down 45% from 2015.

2017 is positioned to be a strong year for IPOs, with many of the more obvious geopolitical impediments now in the rearview. Investor confidence is high, Q4 2016 saw several high-profile deals price, and this momentum is poised to carry over into 2017.

Key things to watch in 2017

  • Low volatility and a lack of macro impediments should set the stage for an active first half.
  • Investor confidence is returning to the emerging markets and could enable a marked uptick in issuance.
  • Mounting pressure on unicorns could drive deals in the tech space.

PE-backed IPOs fall 45% from 2015

The year 2016 saw 96 companies raise US$32.1b, a 45% decline from the US$58b raised in 2015. While PE-backed deals remain an important part of the market, their percentage has declined since the peak of the exit cycle in 2014.

EY - PE-backed IPOs fall 45% from Q2

 

PE-backed IPOs by year

EY - PE-backed IPOs by year

EY - Despite quiet market for new issuance, performance positive for 2016 deals

Despite quiet market for new issuance, performance positive for 2016 deals

Despite the challenging market for going public in 2016, PE deals that did launch closed out its first day up 7.3% from its offer price, and closed out the year up 14.0% from its offer price. By comparison, the MSCI World was up 8.2% in 2016.

Despite quiet market for new issuance, performance positive for 2016 deals

Despite the challenging market for going public in 2016, PE deals that did launch closed out its first day up 7.3% from its offer price, and closed out the year up 14.0% from its offer price. By comparison, the MSCI World was up 8.2% in 2016.

EY - Despite quiet market for new issuance, performance positive for 2016 deals

 

Follow-ons decline after three years of strong activity

The declines in the primary market hit the secondary market as well. After three years of follow-on activity surpassing US$100m, follow-ons fell 31% in 2016, as inventory declined.

EY - Follow-ons decline after three years of strong activity

 

2016 sees declines across all regions

Macroeconomic and geopolitical uncertainty — the slowdown in China, the UK’s vote to leave the EU, and the uncertainty around the US presidential election — led to sluggish IPO markets across all major regions in 2016.

EY - 2016 sees declines across all regions

 

Strategic drives the exit agenda

While all exit routes for PE saw declines, strategic acquirers are enabling the bulk of PE exits. They accounted for 70% of PE-backed exits in 2016 while IPOs’ proportion fell by almost half.

EY - Strategic drives the exit agenda

 

EY - Consumer Products and Retail sees most activity

Consumer Products and Retail sees most activity

IPO activity was the most robust in the CPR space, with 23 separate IPOs raising US$7.8b in total, representing nearly one-quarter of PE-backed deals.

Consumer Products and Retail sees most activity

IPO activity was the most robust in the CPR space, with 23 separate IPOs raising US$7.8b in total, representing nearly one-quarter of PE-backed deals.

EY - Consumer Products and Retail sees most activity

 

Pipeline strong for 2017

60

PE-backed companies in registration

While exits are winding down from their record highs, IPOs will remain an important part of the market. There are currently more than 60 PE-backed companies in registration that could raise nearly US$10b in aggregate proceeds.