International IPOs: A big market getting bigger
There’s a healthy spread of deals across the globe.
Q: How big is the international IPO market? It is expansive and growing. Renaissance Capital, a research provider that specializes in initial public offering intelligence, valued the international IPO market at $145 billion last year. That’s a 15% increase over 2019 and more than double the size of 2020’s North American IPO market of $75 billion.
The Asian Pacific region dominates international IPO activity, accounting for a 60% to 80% share of the market over the last three years. Europe is No. 2, with more than $20 billion in deals in each of the last three years. At only 5%, Latin America trails but is starting to see an uptick in activity. Two years ago, there were only three initial public offerings on Brazil’s B3 stock exchange with a combined deal value of $1.7 billion. Listings in 2020 grew to 22 and had a combined value of $7 billion.
Q: How does the international IPO market differ from its U.S. counterpart? Some international markets have their own nuances, usually something minor like a longer waiting period between when the IPO book closes and the commencement of trading (in the U.S., it’s usually a day or two while in some international markets it could be a week or more). Beyond these nuances, the IPO process really isn’t all that different. It typically lasts a week or two and consists of the deal announcement with the terms, the circulation of the prospectus and then a management roadshow before the order book is closed and final pricing is announced. After the deal is priced, investors are informed of their allocations and then the IPO begins to trade on the exchange on which it is listed.
The Technology and Health Care sectors have dominated the international IPO market over the last few years, paralleling the trend in the United States. It’s no surprise that companies that are in the two fastest-growing sectors are utilizing IPOs to raise capital to help fund future growth.
Q: Is access to this market more difficult? It is for U.S.-based retail investors because most deals are listed on international exchanges, where participation is usually restricted to local investors and qualified institutional buyers. U.S.-based institutional investors like ourselves are set up to trade in these markets so that negates the need for an on-the-ground presence. In addition, it’s very common for the listing company to want a global, diversified shareholder base with a preference toward long-only funds that will maintain and potentially grow their investment. This can place us in an advantageous position.
Q: What’s your criteria for participating in these IPOs? We’re highly selective and will only participate in an IPO if we believe the company fits our long-term investment criteria. In instances where we do participate, we have found that IPOs provide an opportunity to invest in companies that are still early in their growth curves, presenting a potential opportunity to produce above-average returns for our shareholders. Some of our top-performing holdings over the last five years have come from positions that were initially started by participating in the company’s IPO.
Q: Can you provide an example of an IPO that illustrates the opportunity? There was an online gaming developer and marketer in Sweden that went public in 2015 at a valuation of around $500 million. Fast forward six years and it's now valued at more than $25 billion, having become a dominate global provider of live dealer games to online casinos. This type of value creation is possible when one is able to invest in a great business still in its early stages of growth.