Twitter Inc. and Hilton Worldwide Holdings Inc. helped lead the best year for U.S. initial public offerings since the financial crisis, with strong trading debuts likely to stoke investor demand for new shares in 2014.
Companies raised about $22 billion in U.S. IPOs in the fourth quarter, bringing the total for the year to $56 billion, the most since 2007, according to data compiled by Bloomberg. Sales in Europe and Asia also rose sharply, with global deals tripling from the prior three months, the data show.
Stock-market gains that lifted U.S. benchmarks to records pushed investors to seek new opportunities, fueling demand for IPOs, according to Sica Wealth Management LLC. The success of new listings -- with stocks from New York to Tokyo jumping an average of 28 percent in their trading debuts -- is luring investors and companies into the market for next year, said Deutsche Bank AG’s Mark Hantho.
“We’ve had a renaissance of the IPO market,” Hantho, the global head of equity capital markets at the German bank, said by phone from New York. “Getting successful transactions more often than not has created a circular confidence for more companies looking to go public.”
Companies will raise as much as $225 billion through IPOs globally next year, with about $75 billion in the U.S., according to estimates by Joe Castle, global head of equity syndicate at Barclays Plc in New York. That compares with about $190 billion globally -- including real estate investment trusts, special-purpose acquisition companies and closed-end funds -- in 2013, data compiled by Bloomberg show.
Companies raised $15.8 billion through IPOs in Europe, the Middle East and Africa over the past three months, up almost fivefold from $3.3 billion in the third quarter, the data show. Royal Mail Plc, Britain’s 360-year-old postal service, sold $3.2 billion worth of shares during its October IPO including an overallotment, the largest in Europe this year.
In Asia, four companies had IPOs of more than $1 billion each, led by China Cinda Asset Management Co.’s $2.5 billion offering this month.
“It’s been a good period to do capital raising,” said Alan Richardson, a Hong Kong-based money manager at Samsung Asset Management. “The environment in general has been improving, led by the U.S. stock market, and this in turn has contributed to more risk appetite in developed Asia.”
The Federal Reserve’s efforts to keep borrowing costs low and boost economic growth have sent the Standard & Poor’s 500 index up 27 percent this year, the biggest increase since 1997. This in turn increased investors’ willingness to take on the risk of investing in new -- untested -- shares, according to Jeff Sica, president of Sica Wealth Management.
“Investors were so caught up in the broad equity market and desperate to take risks in order to seek massive returns,” Sica said. “They viewed IPOs as easy money and jumped on the bandwagon in an effort to make a quick dollar.”
The clamoring for IPOs is evident in the early performance of newly listed shares: Companies raising more than $100 million jumped an average of 21 percent on their first day of trading in the U.S. this year, according to data compiled by Bloomberg. That’s the highest pop since the dot-com bubble in 2000, when shares rose 65 percent, on average, the data show.
In Asia, first-day gains were more than 6 percent on average, while in Europe they were more than 7 percent, the data show. Still, continued success will depend upon how the global economic recovery continues, and whether that affects inflation, according to Samsung’s Richardson.
“The biggest risk would be that as the global economy recovers, inflation may start to rise beyond central banks’ target levels, which could be detrimental to corporate earnings growth,” Richardson said. “If inflation expectations start accelerating, that would be detrimental to stock markets.”
Some emerging markets didn’t fare as well in initial share sales this year. Brazil’s initial public offerings dried up after the best start of a year since 2007 as investors fled volatility in the world’s worst-performing major stock market. In India, the volume of IPOs hit a more than 10-year low as political gridlock fueled stock-market volatility.
Emerging markets “may not fully benefit from the start of a global economic recovery because they have to face the headwinds of monetary tightening,” Samsung’s Richardson said. “Historically, rising real interest rates has been negative to the performance of emerging markets, which have been more dependent on easy liquidity.”
Emerging-market stocks posted their longest weekly slump since June on Dec. 20 as a cut in U.S. stimulus spurred capital outflows. The Federal Reserve said Dec. 18 it will reduce a record bond buying program by $10 billion, while pledging to keep interest rates near zero. Its monetary stimulus program had been helping to prop up global growth by supporting inflows into emerging markets.
Investor appetite for shares in developed markets fueled a jump in inflows for equities globally to about $252 billion this year, compared with $31 billion in 2012, said Richard Cormack, co-head of equity capital markets for Europe, the Middle East and Africa at Goldman Sachs Group Inc. “The strong levels of demand we have seen for IPOs has led to deals getting covered early.”
Hutchison Whampoa Ltd. picked bankers to manage an IPO of its retail arm A.S. Watson & Co. in Asia with a possible secondary listing in London, people with knowledge of the matter said. General Electric Co. plans to spin off its unit that makes store credit cards in a U.S. IPO next year, and China’s Alibaba Group Holding Ltd. may approach public markets, though the company hasn’t detailed any plans for a listing.
China’s decision to end a 15-month freeze on IPOs could unleash $11 billion in share sales through the middle of next year, as more than 760 mainland companies have been waiting to go public, according to data compiled by Bloomberg News.
In Europe, there are already more than 30 IPOs slated for the first half of 2014, according to Martin Thorneycroft, head of equity syndicate for EMEA at Morgan Stanley in London.
“We’ve seen a sturdy comeback of the IPO market and a remarkable resurgence of investor appetite,” Thorneycroft said. “There will continue to be a broad spread of activity, with a number of billion-dollar type transactions.”
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