Global IPO Slowdown Could Last Until Third Quarter Of 2020

By Tom Zanki
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Law360 (March 25, 2020, 5:53 PM EDT) -- The coronavirus pandemic halted global initial public offering activity in the first quarter after a promising start, according to an EY report released Wednesday, which projects that activity may not fully rebound until the third quarter of 2020.

Accounting and consulting firm EY said first-quarter activity swung from a strong January and February to a standstill in March. Yet deal levels still eclipsed the first quarter of 2019.

That tracks with what lawyers have reported seeing amid the public health crisis — even relatively stable blank-check deals are starting to falter as the pandemic drags on.

EY reports that 235 IPOs raised $28.5 billion in the first three months of 2020, compared with 211 deals that netted $15.1 billion in the year-ago quarter. First-quarter 2019 activity was depressed partly because the government shutdown in the United States forced partial closures of agencies like the U.S. Securities and Exchange Commission, grinding most deals to a halt.

Early 2020 had been faring much better, but global IPO proceeds plummeted in March, according to EY. Companies raised $7.1 billion so far this month, compared with $21.4 billion combined in January and February.

Markets have tanked in recent weeks as investors have attempted to sort the economic fallout of the coronavirus pandemic, which has upended daily lives and business routines worldwide. Only two U.S. IPOs have priced this month and none since March 11, according to figures tracked by IPO research firm Renaissance Capital.

"Unexpected and novel events surrounding COVID-19 took a toll on the global health of equity markets and, together with other global market factors, have caused market turbulence last seen only during the global financial crisis of 2008," Paul Go, a global IPO leader at EY, said in a statement. "This extreme market volatility makes any ambitions to go public highly uncertain, both in terms of timing and valuation."

On a global level, EY said, second-quarter activity is unlikely to rebound given the coronavirus' impact. But the normally quiet summer months of July and August could see more activity than usual if there is pent-up demand from companies wanting to go public. The third quarter starts on July 1. 

"While Q3 is typically a slower time of the year, there may be increased IPO activity as the market attempts a reset and the global pipeline looks for the next IPO window," EY said.

U.S. IPO activity had been robust before markets slid. EY reports that U.S. exchanges generated 24 IPOs that raised $7.3 billion in the first quarter of 2020, accounting for 60% of all activity in North and South America. EY indicated that companies are preparing deals behind the scenes while the market is paused.

"While COVID-19 and oil tensions have largely dried up IPO activity for now, IPO preparation continues and the IPO pipeline is growing, as issuers look for opportunities to be prepared for calmer and more conducive markets.," EY Americas IPO leader Jackie Kelley said in a statement.

The Europe-Middle East-India-Africa, or EMEIA, region took the biggest hit in deals. It generated 35 IPOs, down nearly a third from 2019 levels, according to EY. The firm notes that many companies in this region have cross-border supply chains, making them susceptible to disruption caused by the coronavirus pandemic.

Still, EMEIA proceeds nearly doubled from year-ago levels to $3.5 billion, thanks largely to a $1.4 billion IPO from Indian financial services company SBI Card & Payment Services Ltd.

The Asia-Pacific region was the most active worldwide in the first quarter, generating 160 IPOs that raised $16.8 billion. In terms of the number of IPOs, Asia-Pacific companies accounted for two-thirds of the global total, according to EY.

"Although COVID-19 has had some impact on IPO activity in the short term, with government policies and economic stimulus packages in place, IPO markets should see some improvement in the quarters to come," EY Asia-Pacific IPO leader Ringo Choi said in a statement..

In terms of industries, the industrials sector dominated the first-quarter activity around the world with 45 IPOs, raising $6.3 billion. Technology was the second most active sector with 40 deals, EY said, while health care issues generated 30 IPOs.

--Editing by Alanna Weissman.

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