Ali...who? One company dominated
the conversation about initial public offerings in the third
quarter, and for good reason:
Alibaba Group Holding Ltd. (BABA) raised
a record-breaking $25 billion in the U.S. this month.
Leave it out of the total raised, though, and the three
months through September were still the busiest for IPOs in four
years. From German online retailer Zalando SE to
WH Group Ltd. (288),
the world’s largest pork producer, companies raised $41.8
billion through yesterday, data compiled by Bloomberg show. In
the U.S., it was the busiest third quarter in more than a decade
-- also without Alibaba included.
Record stock prices are drawing sellers to the market while
investors hunting for returns have been rewarded for betting on
new stocks: Globally, the median performance of newly-listed
shares this year was nearly three times as much as the broader
stock market. While a drop in share prices or a few high-profile
flops could slow down dealmaking, the IPO market is for now
feeding off of the success of deals like Alibaba’s.
“Alibaba breathed even more life into the IPO market,”
said Liz Myers, global head of
equity capital markets at
JPMorgan Chase & Co. in
New York. “It has definitely helped to
enhance the sentiment for new deals in what has been a busy IPO
calendar year.”
Including Alibaba, IPOs globally raised $66.8 billion
during the quarter, the most during this period ever. About
$40.1 billion of that was raised in the the U.S., with another
$8.6 billion in
Europe and $14.3 billion in
Asia, data compiled
by Bloomberg show. For the first nine months of the year, the
global total has reached $182.7 billion.
Seller’s Market
The demand for IPOs has created an opportunity for sellers
to start exiting long-standing investments. Yahoo! Inc., which
invested in Alibaba in 2005, profited by selling shares of the
e-commerce company to fund managers drawn to its exposure to
Chinese consumers. Royal Bank of Scotland Group Plc spun off its
U.S. unit
Citizens Financial Group Inc. (CFG), ING Groep NV sold
almost one-third of insurer NN Group NV.
Also in Europe,
Germany’s Samwer brothers sold a stake in
Zalando, the continent’s largest online-only fashion and shoe
retailer. The company will raise as much as $768 million in
Germany’s first big technology IPO since Deutsche Telekom AG
listed its dial-up business in 2000.
The Samwers have another IPO in the pipeline. Rocket
Internet AG, the investment vehicle that backs Zalando and
replicates businesses from Groupon Inc. to Airbnb Inc., is
expected to set the price of a potentially $1.8 billion sale
later this week.
Gains Continue
Even though Alibaba soaked up $25 billion of investor
capital, fund managers continue to put more cash toward IPOs.
“It’s not a capital-constrained market, it’s an
opportunity-constrained one,” Paul Donahue, co-head of equity
capital markets at Morgan Stanley in New York. “As a class,
IPOs are still working. As long as underwriters and business
owners remain responsible with valuation and positioning, the
broader backdrop still remains conducive to IPOs.”
In the U.S., IPOs returned an average of 19 percent over
the quarter, whereas the broader
S&P 500 Index rose just 0.9
percent. In Europe, IPOs that started trading in the quarter
were up 11 percent, compared with a 1 percent decline in the
benchmark Stoxx Europe 600 Index. In Asia the jump was 64
percent over the period, when the MSCI Asia Pacific Index
slipped 3.1 percent.
Potential Reversal
The IPO market remains susceptible to a reversal in stock
prices and corresponding pickup in volatility, which makes
pricing new deals difficult. WH Group, the owner of Smithfield
Foods Inc., raised about $2.4 billion in
Hong Kong in July,
three months after the company and investors dropped a plan to
sell more than $5 billion of stock as equities fell.
Hong Kong led a global decline in stocks again yesterday,
after pro-democracy protests in the city were met with a police
crackdown. Major benchmarks across the world have posted a week
of losses while in the U.S., markets have become more volatile
with the
Dow Jones Industrial Average (INDU) alternating between gains
and losses of more than 100 points the previous four days.
High-profile deals like Alibaba’s also have the power to
shut the entire global IPO market if they don’t fare well,
according to Goldman Sachs Group Inc.’s Richard Cormack.
“Alibaba’s success is certainly helpful for global IPO
markets,” said Cormack, the firm’s co-head of equity capital
markets for Europe, Middle East and
Africa. “Had it not done
well, the impact would have been more dramatic on the
downside.”
Growth Prospects
One factor behind Alibaba’s success was its relatively
conservative pricing: The company sought a lower price-to-earnings valuation than its Chinese Internet peers and raised
its fundraising target by just three percent.
Like Alibaba, other companies with high growth prospects
fared well in the IPO market.
Mobileye NV (MBLY), the Israeli company
creating software for driverless cars, raised $890 million in
July after increasing the size of its IPO by 28 percent and
surged on its debut.
Rocket Internet almost doubled the amount it’s seeking to
raise in an initial public offering to $1.8 billion after
receiving enough orders to cover the sale across its
price
range.
“The level of appetite and interest in IPOs post-summer
has been a pleasant surprise and most of the transactions that
came to the market in the quarter were well-received,” said
Nick Williams, head of equity capital markets for Europe, the
Middle East and Africa at Credit Suisse Group AG. “As long as
companies are disciplined on pricing and deal structures, we
expect that to continue for the rest of the year.”
To contact the reporters on this story:
Leslie Picker in New York at
lpicker2@bloomberg.net;
Ruth David in London at
rdavid9@bloomberg.net;
Fox Hu in Hong Kong at
fhu7@bloomberg.net
To contact the editors responsible for this story:
Mohammed Hadi at
mhadi1@bloomberg.net;
Philip Lagerkranser at
lagerkranser@bloomberg.net;
Aaron Kirchfeld at
akirchfeld@bloomberg.net
Elizabeth Fournier, Ben Scent
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