The US equities market showed it had liquidity and risk appetite in spades in 2012, scooping up new listings of everything from Santander Mexico to Manchester United. (Oh, and Facebook.) When it came time to list in 2012, the place to do it was New York – and that could be the case for some time to come.
To see the full digital edition of the IFR Americas Review of the Year, please click here.
Amid gripes about the listing process in the UK, and a lingering malaise across the whole of Europe, New York turned out to be the market of choice for IPOs in 2012. Between them, NYSE and Nasdaq captured 41% of the US$96bn in IPO proceeds during the first 11 months of the year – nearly double the 24.8% market share they garnered the previous year.
While some of that swing can be attributed to the giant Facebook listing, there is no doubt that the US was the clear winner in the battle for global listings, providing a deep pool of liquidity and risk appetite that just wasn’t there in other markets this year.
“Throughout 2012, US investors have been showing far greater and more vibrant demand for IPOs than their counterparts elsewhere,” said David Hermer, head of ECM for the Americas at Credit Suisse in New York. “They are looking for sources of alpha, and are most receptive to new ideas. So it has made sense for companies to list where demand is greatest.”
While ECM bankers in Europe endured a mostly miserable year, their US counterparts enjoyed a strong pipeline of both domestic and foreign business – from deals that couldn’t seem to get done elsewhere (Manchester United) or were just a good fit for the US market (Santander Mexico).
Indeed, the dual-listed Santander Mexico share offering – raising US$4.1bn in the third-largest IPO of the year, behind only Facebook and Japan Airlines – underscored that the US was the natural venue for Latin American companies seeking a global investor base. And bankers say that is unlikely to change anytime soon.
“We have a strong pipeline of deals from companies across Latin America going into 2013,” said one head of ECM at a US bank. “Every single one of them is going to the NYSE. More than half of Santander’s offering ended up in the hands of US investors, and that is the case on most big Latin American deals. So going to New York is a no-brainer.”
In a number of cases, deals that ended up on the shelf in other markets were able to get done in New York.
“The US as a whole [was] one of the only markets globally with an IPO window in 2012,” said Scott Cutler, global head of listings at NYSE Euronext. “With concerns about getting a deal done pretty much everywhere else, the US has been the natural home for companies looking to raise capital.”
Edwards Group, the UK vacuum technology group, made a surprise return to the market in May with a second attempt at an IPO. After abandoning plans for a listing on the LSE in 2011, the company switched to Nasdaq.
One banker close to the deal said that the change of venue supported the argument that the company anticipated more value from a US listing. But the decision was also clearly driven by the same piece of legislation that persuaded Manchester United to list in New York after more than a year of deliberation.
A jump-start
The US’s Jumpstart Our Business Startups Act (JOBS Act) was designed to make it easier for small companies to raise capital and create jobs. Manchester United, which at first eyed a Hong Kong IPO, flirted with a deal in Malaysia, and then planned a US$1bn listing in Singapore, finally came to the US – where it qualified as an “emerging growth company” under the legislation, which eased disclosure and reporting requirements on small businesses wanting to go public.
In October, Ireland-based fleet management software firm FleetMatics saw its shares surge more than 30% on debut after pricing its US$133m NYSE IPO at the top end of the range. The company picked the US because of the strength of the investor base in the technology sector.
“In the past, small technology companies would operate in local markets,” Cutler said. “Now they are global, so they have a global investor base to reflect that.”
NYSE Euronext launched a grab for technology listings from specialist Nasdaq two years ago, and since then the sector has been a battleground for the two exchanges. The NYSE came off well by landing the listing of LinkedIn in 2011, and this year 52% of technology companies that came to the public markets chose the NYSE.
Tech still going strong
Even the Facebook fiasco failed to kill off the tech sector listings. The social media behemoth saw its shares tank – quickly and often. From a high of US$45 on the first day of trading on May 19, it dropped to US$29.60 by May 31; in early November it was down near US$21. And market-makers like UBS, Knight Capital (which would soon have its own technology-related troubles) and others said they collectively lost around US$500m in the messy rush for Facebook’s IPO.
Nasdaq has since disclosed that the SEC’s enforcement division is investigating the events leading up to the IPO. Nasdaq had originally drafted a $40m compensation plan for banks that lost money, and later increased it to US$62m amid widespread criticism.
Even so, successful tech listings kept coming to market. ServiceNow, the first technology company taken public by Morgan Stanley after Facebook, climbed 37% in its debut on the NYSE after raising US$210m on June 29, pricing the shares above the planned range.
In July, Palo Alto Networks, an enterprise security company, hit the ground running with a US$260.4m debut on the NYSE; its shares jumped 31% on the first day of trading. On the same day, Kayak Software priced an offering of 3.5m Class A shares at US$26, above the expected range of US$22–$25 a share, on Nasdaq.
“The Facebook IPO did not have an impact on the pipeline for future tech IPOs,” said Credit Suisse’s Hermer. “Overall, 2012 has been a story of the haves and have-nots in the US IPO market, with investors willing to differentiate and pay a premium for high-quality fast-growing stories in the technology sector.”
NYSE Euronext’s Cutler said: “The Facebook IPO has not affected demand for tech IPOs.”
When one market is winning, of course, another is usually losing – and in this case that is London. The London market, which garnered 10.3% of global IPO proceeds in 2011, managed just 3% this year.
London has been blighted by a combination of economic malaise and a loss of investor confidence in the IPO process, which resulted in what was, in effect, a buyers’ strike. “The UK market is dominated by a relatively small group of investors who have chosen to stay on the sidelines. Right now, the cost of entry into the UK market is high,” said one ECM banker.
In 2011, disquiet over the IPO process prompted BlackRock to send a letter to leading underwriting banks slamming their aggressive approach and the high fees they commanded.
But most believe the UK will bounce back when conditions are right. “I don’t think the loss of listings from London is anything to do with the IPO process, it’s more to do with the confidence of the eco-system,” Cutler said.