The outlook for global ECM is healthier now than for several years. The signs of recovery were plain to see at the time of the publication of last year's ECM report, but this year's resurgence of M&A activity coupled with strong secondary market performances have created conditions that do not just suit equity issuance, but actually make it desirable.
The star performer from a regional perspective has undoubtedly been Europe. By this time in 2004, ECM proceeds in the region had just passed the US$100bn mark, double the level achieved in the whole of 2003. But in 2005, proceeds have already reached US$112bn and the pipeline for the remaining months of the year is exceptionally strong.
Bankers predict activity of least US$60bn–$70bn in Europe before the end of the year, which would take full-year proceeds above the US$169bn year-end total for 2004.
What has been striking about activity so far – and is also true of the pipeline – is the variety of business being transacted.
While the market was dominated by quick-to-market risk trades during the downturn, the fact that IPOs and rights issues are the major features of the current environment is a testament to issuers' confidence in the ability of the equity markets to support their plans. However, corporates are still able to apply pressure on the investment banking community, through developments such as the hard-underwritten IPO and the competitive pre-marketing process.
The prospects for activity in the Middle East are on the minds of most of the large international securities firms. All of them have now established operations in Dubai following the creation of a new financial centre and in anticipation of the opening of the Dubai International Financial Exchange at the end of September.
In Asia, too, the outlook is positive. Privatisations across the region – whether Telstra in Australia, the financial sector in China or long-awaited deals such as EGAT in Thailand – continue to boost activity and to supply a good portion of the remaining pipeline. The potential for more internationally-focused business out of China is evidenced by the number of foreign investment banks looking at the prospects of establishing joint ventures with local brokers.
Australian ECM continues to be a supplier of innovation, from complex hybrid issues to so-called Rapids. As the Australian real estate investment trust sector comes close to having absorbed most of the quality available property assets, other providers of dependable income streams – such as infrastructure trusts – are finding favour with investors.
Shell companies that seek cash through IPOs with no clear indication of where they will invest it have also been a feature in Australia – where they are called cashboxes. The same phenomenon may be about to take off in the US, where "blank check" IPOs are lining up in number, but are proving slow to progress.
As in last year's ECM report, the overall theme is one of innovation, whether at a product level or in terms of progress in new geographic areas. Although such innovation has often been a reaction to tough conditions, which have made new approaches a necessity, the fact that it continues even while markets improve should provide confidence to issuers and investors alike.