Cross-Border IPOs: Review And Outlook

Tuesday, 12th May 2015

Recent trends in globalisation have seen companies increasingly looking to international markets to obtain capital. Although the financial crisis dampened enthusiasm, 2014 saw strong resurgence for cross-border issues. Historically companies in developing countries have looked to mature exchanges to access capital, predominantly London and New York. However, more recently, businesses in developed countries have also been tempted to access the growing pools of wealth in developing countries through cross-border IPOs.

The main financial driver of cross-border IPOs is almost always access to capital. The major exchanges in developed countries offer businesses with strong growth prospects excellent access to sophisticated investment infrastructure. Meanwhile, listing in a venue with a more knowledgeable investor base is widely regarded as having a positive impact on IPO valuation. Other underlying factors, including non-financial drivers, have been helping fuel the resurgence too. For example, some Western luxury brands have listed themselves in Hong Kong to promote greater brand awareness while for other businesses, listing on the NYSE or LSE is a matter of prestige that helps them to attract and retain good talent. 

A closer look

The financial benefits of cross-border listings have been readily apparent as stock markets hit record highs in developed countries such as the US, the UK, Germany and Sweden throughout 2013 and 2014. Even countries such as Japan, France and Ireland have seen their main markets rise to their highest levels since 2008. The economic stimulus provided by central banks in the US, the UK and now Europe alongside continued record low interest rates have been important factors in boosting markets. 

As 2014 came to a close, it was noted as the biggest year since 2010 for global IPOs according to research performed by consultancy EY. In 2014, 851 listings raised US$256.6b globally which, in terms of capital raised, put the figures 50 per cent ahead of 2013. The strong figures have been driven by an improving macroeconomic environment, buoyant equity markets and the presence of private equity financial sponsors looking to make exits on expensive deals that were struck before the financial crisis. Cross-border listings made up 11 per cent of the global figure with 129 deals; up 2 per cent compared to 2013.

The most attractive jurisdiction for businesses seeking to list overseas was the US which drew more than 50 per cent of cross-border listings and 80 per cent of deal value to its shores according to EY’s figures. Over $40 billion was raised on US markets for businesses based in the UK and Europe, China and Israel. Other western IPO destinations popular with overseas businesses were London which saw 28 international listings in 2014 and Germany. Meanwhile the Asia-Pacific region saw Australia, Hong Kong and Singapore all attracting foreign businesses to raise capital on their exchanges. Hong Kong was a strong performer raising over $20 billion for foreign businesses and proving particularly popular with companies based in mainland China.

Cross-border IPO outlook

The increasing interest among businesses in acquiring international capital and gaining access to global markets means cross border IPOs are expected to remain buoyant over the coming months. However, within that ongoing surge in activity there are micro-trends emerging that are likely to influence how IPOs are conducted.

These include the development of emerging market exchanges which are growing at significant rates in certain countries. Competition among exchanges is therefore likely to intensify putting pressure on the dominant exchanges based in London and New York. Meanwhile the proliferation of regulation in certain jurisdictions such as the UK and US has the potential to dampen cross-border activity. Macro-economic factors such as the end of quantitative easing and expectations of interest rate rises may also suppress the IPO pipeline. Political and economic events such as the UK and US elections in the next couple of years, the ongoing EU crisis, and the increasing domestic focus on financial centres in Asia Pacific regions such as Hong Kong and Singapore, may also impact on cross border IPOs.