Global_IPO_trends_2012.pdf

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Global IPO trends 2012Prepare early, move fast


2/32ii Global IPO trends report 2010

Perspectives on global IPO markets

Foreword

Dear friends,

The global IPO markets showed remarkable resilience in 2011. With economicrecovery gaining momentum and a solid pipeline of pro table companies readyto list, the rst half of the year was strong. Unfortunately, Europes debt problemsresurfaced at the halfway point and other nations exhibited slower economicindicators, making conditions dif cult for the rest of the year. However, even withmany of the worlds strongest IPO markets effectively closed for the last six months

of 2011, the fundraising levels they managed to achieve were impressive.In 2011, we saw IPO companies and their potential investors adapting to a newmarket environment, one in which volatility has become the norm. Timing thismarket is an art; the windows when conditions are favorable for an IPO are shortand unpredictable. Companies need to prepare earlier, and be ready to move fast.

Shortterm concerns aside, 2011 saw the continuation of many of the trends thathave driven global IPO markets for a few years now the rapid growth of emergingmarkets and the rise of China, in particular. These trends have continued into 2012.Developed markets peaked intermittently during the year, in key industries such astechnology, mining and metals and healthcare, and there was a growing numberof private equity and venture capital-backed IPOs. Volatility will remain with us,

too, although probably at a reduced level. Europe may not resolve its sovereign debtproblems, but it should at least agree upon a way forward that in itself wouldremove a signi cant weight from the IPO markets.

This ninth annual Ernst & Young Global IPO trends report highlights the outlookfor IPO markets and analyzes the key trends of 2011. It includes the perspectivesof some of the worlds top investment bankers, whom wed like to thank for theirtime and support.

Life in the public eye would not suit all businesses, but for many fastgrowing privatecompanies, an IPO can raise the capital needed to accelerate growth and achievemarket leadership. We look forward to working with these companies and theirteams in their transformation from private entities to public enterprises.

Maria PinelliGlobal Vice ChairStrategic Growth Markets


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Contents

Global IPO markets2

6

Global outlook: eight trends to watch in 2012

In review: 2011

Interview9 David Erickson, Barclays Capital

Asia10 China

Greater scrutiny

Interviews12 Fang Fang, JPMorgan Chase & Co.13 Daniel Ng, BOC International

14 IndiaFresh capital to fuel growing consumerism

Americas16 United States

A waiting game

Interview18 Tom Fox, UBS

19 BrazilPrivate equity leads the way

EMEA20 Europe

A bumpy road ahead

Interviews22 Georg Hansel, Deutsche Bank23 Klaus H. Hessberger, JPMorgan

24 Middle East and AfricaSaudi Arabia leads the way

Private equity25 A tale of two markets

Global IPO trends 2012


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Global

1. Learning to live with volatility. The biggest single factor affecting the globalIPO markets last year was probably volatility. The CBOE Volatility (VIX) index,a popular measure of implied volatility of S&P 500 index options, has become oneof the closestwatched market indicators. When the VIX is above the 20% to 25% range,volatility is such that the IPO markets are effectively shut. The VIX was on a downwardtrend in the rst half of 2011, but it shot up in the middle of the year when the Europeandebt crisis unfolded and the US saw its credit rating downgraded. Volatility will mostlikely diminish somewhat in 2012, but the unpredictable nature of the market will bea key factor in uencing IPO decisions for the next 12 months at least. The windowsfor completing a deal successfully are likely to open and close quickly, and often withlittle or no warning.

2. Managing execution risk. Questions about valuation and aftermarket performanceremain front of mind for IPO candidates, but execution risk has become a primaryconcern. With pricing conditions changing so quickly and a record number of companieshaving to withdraw their listing plans, candidates are worried about whether they will beable to complete their public offering. On the upside, investors have grown tolerantof companies that announce plans for an IPO and then delay a listing until the timingis right. But they will still penalize those that decide to bring a deal to the market,only to scrap their plans because they lack support. The elevation of execution riskchanges the way companies need to plan for their IPO.

3. Prepare early, move fast. Two key factors will increase an IPO candidates chancesof completing a listing and on favorable terms this year: begin listing preparations earlierthan normal, and be ready to move a lot more quickly once a viable market windowopens. Globally, some IPO markets are better suited to an accelerated listing process thanothers. But wherever they plan to list, IPO companies need to ensure they have a clear,compelling story to tell investors, with the transparent nancial information neededto back it up. Likewise, candidates will need to be con dent that they have identi edand managed any risks that might slow down the listing process or derail it entirely.

4. Companies to keep an open mind. The dif culty of taking a company publicencouraged many IPO companies to think more creatively about where they might listlast year. We expect this trend to continue in 2012. Rather than simply listing on theirnational market by default, we saw several European companies take some or allof their IPO to Asia or the US. Newer forms of equity nancing, such crowdfundingportals enabling direct access to investors and newcomers like important multilateraltrading facilities entering the listing business, also became more appealing to IPO

companies. With the market conditions likely to remain challenging through 2012,companies need to take a broad view of their funding options.

5. Central bankers hold the keys. The sovereign debt crisis in Europe and other nationsexhibiting slower economic indicators weighed heavily on global IPO markets last year.The failure of policymakers to agree upon a clear solution to the Eurozones scaldif culties was the main reason why IPO activity virtually ground to a halt in the secondhalf of the year. As 2012 moves forward, the outlook is brighter. Europe has madeprogress toward xing its problems and the US economy has improved. Globally,there is a very full pipeline of pro table, capitalhungry businesses eager to go public.Nonetheless, the keys to a sustained IPO market recovery will, largely, remainin the hands of the worlds central bankers and sovereign leaders through 2012.

Global IPO marketsGlobal outlook

The windowsfor completing a dealsuccessfully are likelyto open and closequickly, and often withlittle or no warning.

2

Eight trends to watch in 2012



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Figure 2: Key global IPO statistics

2009 2010 2011Number of deals 577 1,393 ( 141% 1) 1,225 ( 12%2)Capital raised (US$) $112.6b $284.6b ( 153% 1) $169.9b ( 40%2)Average deal size (US$) $195.1m $204.8m $138.7mPEbacked IPOs 53 deals, $16.2b 155 deals, $35.0b 118 deals, $38.3bTop ve sectors(number of deals)

Industrials (101)Materials (96)

High technology (59)Consumer staples (49)

Financials (46)

Materials (307)Industrials (236)


Energy (94)

Materials (268)Industrials (199)

High technology (149)Consumer products 3 (124)

Energy (110)

Top ve sectors(capital raised)

Industrials ($23.2b)Financials ($22.6b)

Energy ($12.1b)

Real estate ($10.8b)Materials ($7.2b)

Financials ($80.0b)Industrials ($57.6b)

Materials ($38.5b)

Energy ($23.2b)High technology ($20.7b)

Materials ($29.2b)Industrials ($26.4b)

Energy ($21.3b)

Financials ($15.9b)High technology ($14.7b)

Top ve exchanges(number of deals)

Hong Kong (56)KOSDAQ (56)

Shenzhen SME (54)Australian (37)

Shenzhen ChiNext (36)

Shenzhen SME (205)Shenzhen ChiNext (116)

Australian (92)Hong Kong (87)

New York (82)

Shenzhen ChiNext (128)Warsaw NewConnect (123)

Shenzhen SME (115)Australian (101)Hong Kong (68)

Top ve exchanges(capital raised)

Hong Kong ($21.9b)Shanghai ($20.4b)New York ($19.1b)

NASDAQ ($8.1b)Shenzhen SME ($6.2b)

Hong Kong ($57.4b)New York ($34.7b)

Shenzhen SME ($30.2b)Shanghai ($27.9b)

Tokyo ($14.3b)

New York ($30.5b)Hong Kong ($25.3b)

Shenzhen SME ($15.7b)Shanghai ($15.1b)

London ($13.9b)

1Percentage change from 2009 to 2010.2Percentage change from 2010 to 2011.3Consumer products includes consumer services such as professional services.

Please see Appendix for the list of stock exchanges.

Figure 1: Global IPOs by number of deals and capital raised

339

385339

457

327

409364

452

360

473

355

608

395

574

442

603

253 274

164

7852

82

146

297 293314 302

484

296

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Q 1 1 0

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Capital raised (US$b) Number of deals

$ 2 9

$ 3 3

$ 2 9

$ 3 9

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383

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291

$ 2 9

255

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Global

Source for all charts and tables shown: Dealogic, Thomson Financial, Ernst & Young.

In an uncertain market, companies should keep an openmind about their IPO options. A longterm view is essential.

Taking a company public is not an event its a journey.And its one of the most rigorous, transformational and scalable

journeys a company and its executives will experience.Maria Pinelli, Global Vice Chair, Strategic Growth Markets, Ernst & Young

Global IPO trends 2012 3


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$ 2 1 0

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876 847 812

1,520 1,5521,796

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769577

1,393

1,225

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

$ 1 7 0

Figure 3: Global IPOs by number of deals and capital raised, by year

1 Source: Preqin, May 2012

6. Remember, companies are pro table. While 2011 was a dif cult year for the globaleconomy, its worth noting that companies overall are pro table. Earnings growthfor the S&P 500 was around 9% for the fourth quarter of last year. That continued adownward shortterm trend, although some sectors performed far better thanthe average, with industrials and technology companies both above 16%. Acrossthe S&P 500, earnings growth rates are forecast to be rising again in the second halfof 2012. Earnings growth among Asian companies is also strong and accelerating.A vibrant IPO market needs at least two ingredients: pro table, capitalhungrycompanies and a positive equity market sentiment. Strong corporate earnings growthhelps to deliver both.

7. Learning from Facebook. The big IPO story of 2012 is likely to be a recordbreakinglisting of Facebook, the social network. A successful public offering could give the IPOmarkets a big con dence boost, if subsequent trading in Facebook stock performs well.One deal does not make a trend, but IPO companies in other sectors can learn a lotfrom studying the recent newlisting experiences of social media and internetcompanies. To keep the offer price high and to minimize execution risk, companies mayoffer relatively small slices of their total capital. More companies may explore thisstrategy in 2012.

8. Private equity will show its strength. The proportion of successful IPOs involvingprivate equity rms increased to record levels last year. Globally, rms exited 118companies, raising around US$38.3b, representing 23% of total IPO proceeds.In the US, nine of the years ten biggest IPOs involved private equitybackedcompanies. Partly, the high proportion of private equity deals in the market is dueto the fact that many companies that didnt have private equity involvement decidedto cancel or delay their listing plans. It also shows how private equity rms havebecome more nimble; when market windows opened, they were ready to move quickly.With an estimated US$375b in dry powder in May 2012 1 and their investment portfolioaging rapidly, we expect private equity rms to be signi cant IPO players againin 2012. There was also a rise in venture capital (VC) backed IPOs globally in 2011,this is expected to continue in 2012. VC rms exited 141 companies in 2011, raisingaround US$17.3b via IPO, representing 10% of total IPO proceeds. In May 2012,venture capital rms hold an estimated US$115b in dry powder.

4

Eight trends to watch in 2012

IPO companies shouldbegin their listingpreparations earlierthan normal and beready to move fast

once a viable marketwindow opens.

Global




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Number of deals Capital raised, US$b

Figure 4: 2010 and 2011 global IPOs by region

734

172

27

879

292292

192

30

Asia-Pacic EMEA North America Central andSouth America

2010 2011 % of global IPO activity

63 60 21 24 14 14 2 2

2010 2011 % of global IPO activity

$191

$41 $44

$9

$88

$35 $38

$9

Asia-Pacic EMEA North America Central andSouth America

67 52 15 20 15 23 3 5

Global

Top 10 by number of dealsExchange No. of deals % of global total

Shenzhen** 243 19.80%

Warsaw NewConnect 123 10.00%Australian 100 8.20%

Hong Kong 68 5.60%

New York 67 5.50%

NASDAQ 54 4.40%

KOSDAQ 53 4.30%

Toronto Venture 47 3.80%

Bombay 39 3.20%

Shanghai 37 3.00%

All other exchanges 394 32.20%

Top 10 by capital raisedExchange Capital raised (US$m) % of global total

New York $30,502 18.00%

Shenzhen** $27,809 16.40%Hong Kong*** $25,296 14.90%

Shanghai $15,075 8.90%

London $13,915 8.20%

NASDAQ $9,614 5.70%

Singapore $7,257 4.30%

Madrid $5,300 3.10%

Sao Paulo $4,412 2.60%

Warsaw $2,775 1.60%

All other exchanges $27,895 16.40%

Figure 6: 2011 global IPOs by stock exchange*

*Data based on domicile of the exchange, regardless of the listed company domicile.**Shenzhen Stock Exchange includes listings on the Mainboard, the Small and Medium Enterprise (SME) market and ChiNext.***Excludes Swiss commodities trader Glencore Internationals US$10b IPO, which is duallisted on the London and Hong Kong stock exchanges in May 2011.Capital raised for this deal was attributed to London Stock Exchange, the primary stock exchange. If this deal is included, HKEx raised US$35.3b in 69 deals.Source for all charts and tables shown: Dealogic, Thomson Financial, Ernst & Young.

Figure 5: 2011 global IPOs by domicile country

Top 10 by number of dealsCountry No. of deals % of global totalGreater China* 388 31.70%

Poland 137 11.20%

United States 108 8.80%

Australia 98 8.00%

South Korea 69 5.60%

Canada 64 5.20%

India 40 3.30%

Japan 37 3.00%

United Kingdom 28 2.30%

Indonesia 26 2.10%Rest of world** (52 countries) 230 18.80%

Grand total 1,225 100.00%

Top 10 by capital raisedCountry Capital raised (US$m) % of global totalGreater China* $72,337 42.60%

United States $35,977 21.20%

Switzerland $10,046 5.90%

Spain $5,300 3.10%

Russian Federation $4,694 2.80%

Brazil $4,412 2.60%

South Korea $3,562 2.10%

Italy $3,024 1.80%

Poland $2,723 1.60%

Canada $2,447 1.40%Rest of world**

(52 countries)$25,329 14.90%

Grand total $169,851 100.00%Based on the listed company domicile.*Greater China includes Mainland China, Hong Kong and Taiwan.**Rest of world includes countries with 1% or less of IPO activity by number of deals or capital raised.



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In review: 2011 A year of two halves. The global IPO markets got off to a promising start in 2011,

with two solid quarters, continuing the pace of 2010. However activity droppeddramatically midway through the year, principally due to investor concerns aboutsovereign debt issues in Europe and Standard & Poors downgrade of the USs creditrating. Capital raised globally in the year declined by 40% to US$169.9b, comparedto 2010. Around 66% of the global capital raised in the year was secured in its rstsix months. The number of deals was down by 12% in 2011 at 1,225 IPOs comparedto 2010. The headline gures might be gloomy, but fundraising activity in 2011 stillexceeded 2009 activity of US$113b by around US$57b.

Asia ascendant. Asian exchanges (including India) led the world in bringing newcompanies to market in 2010, and this trend continued last year. We also sawa higher proportion of private enterprises wanting to go public. Nevertheless,the Asian markets could not avoid the uncertainty and volatility that hurt IPOmarkets elsewhere. Its exchanges completed 610 deals in 2011 raising US$87.5b,a 50% drop by capital raised compared to 2010. The Shanghai and Shenzhen StockExchanges (SME and ChiNext) led the way, raising US$42.9b in 280 deals together.The Hong Kong Stock Exchange (HKEx) raised US$25.3b 1 in 68 deals. Asia will remaina key driver of IPO resurgence in 2012 as the global economy continues to improve.

US shows its resilience. IPO activity on US exchanges held up relatively wellin 2011, given the very dif cult circumstances. As with markets elsewhere, a strongperformance in the rst half of the year was followed by a disappointing outcomein the second. Overall, capital raised in 2011 fell by a modest 8% compared to 2010,to US$40.2b. With the markets volatile and valuations uncertain, the number of IPOs

fell from 2010 by 24% to 124 deals in 2011, but we expect to see this number increasesigni cantly in 2012. There is a strong pipeline of around 200 companies ready to list,once conditions stabilize. Hot sectors include technology, real estate, oil and gas,pharma and consumer retail. Private equity will continue to play an important rolein the IPO market and we also expect to see a solid level of IPO carve-outs and spin-offsin 2012.

Europe looks for a way forward. Economic troubles in Europe blighted the worldsIPO markets last year, although surprisingly its stock exchanges accounted for a slightlylarger share of global IPO funds raised increasing to 17% from 13% in 2010. However,IPO capital raised fell 19% compared to 2010, to US$29.7b and performance variedacross the continent. The IPO market in Poland was very active, with 22 listingson the Warsaw Stock Exchanges increasingly mature main market and a record 123on NewConnect, its market for younger businesses. In France, by contrast, 2011saw the lowest total capital market nancing not only IPOs since 1995. Activitywas also slow in the UK, which is normally the regions IPO powerhouse. We entered2012 without a solution to Europes debt problems, but there was a greater likelihoodthat policymakers would nd a positive way forward.

1 Excludes Swiss commodities trader Glencore Internationals US$10b IPO, which is duallistedon the London and Hong Kong stock exchanges in May 2011. Capital raised for this deal was attributedto London Stock Exchange, the primary stock exchange. If this deal is included, HKEx raised US$35.3bin 69 deals.

Asia has been akey driver of theIPO resurgence asthe global economyemerged fromrecession. In 2010,Asian exchanges ledthe world in bringingnew companies to

market, and this trendcontinued in 2011.

Global




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Figure 7: 2011 global IPOs by sector

Figure 8: 2011 top 20 global IPOs by capital raisedIssuemonth

Issuer name Issuerdomicile

Sector Issuer business description Capital raised(US$b)

Exchange(s)

May GlencoreInternational plc.

Switzerland Materials Diversi ed natural resources group 10 London,Hong Kong

Mar Hutchison PortHoldings Trust

Hong Kong Industrials Involved in port and harbor operationsand warehousing services

5.5 Singapore

Jul Bankia Spain Financials Commercial bank 4.4 MadridMar HCA Holdings Inc. US Health care Operates hospitals and surgery centers 4.4 New YorkFeb Kinder Morgan

Inc.US Energy Transportation and storage of natural gas,

re ned petroleum and crude petroleum3.3 New York

Jun Prada SpA Italy Retail Luxury fashion designer 2.5 Hong Kong

Oct Sinohydro GroupLtd.

MainlandChina

Energy Engaged in water and hydropowergeneration

2.1 Shanghai

May ShanghaiPharmaceuticalsHolding Co. Ltd.

MainlandChina

Health care Manufacturer of pharmaceuticals 2.1 Hong Kong

Dec Chow Tai FookJewellery Co. Ltd.

Hong Kong Consumerproducts

Manufacturer and retailer of diamondand gold jewelry

2 Hong Kong

Jul JSW SA Poland Materials Coal producer and distributor 1.9 WarsawDec New China Life

Insurance Co. Ltd.MainlandChina

Financials Life insurance broker 1.9 Hong Kong,Shanghai

Jan Nielsen HoldingsNV

UnitedStates

Consumerproducts

An information and measurementcompany that provides data on consumers'preferences and behavior

1.9 New York

Oct CITIC Securities MainlandChina

Financials Provider of investment trust managementand securities brokerage services

1.8 Hong Kong

Jun MGM ChinaHoldings Ltd.

Macao Media andentertainment

Leading casino gaming resort developers,owners and operators

1.6 Hong Kong

Apr Hui Xian REIT MainlandChina

Real estate Real estate investment trust 1.6 Hong Kong

Apr Arcos DoradosHoldings Inc.

Argentina Retail Operator of fastfood restaurants;McDonalds franchisee

1.4 New York

May Yandex NV RussianFederation

Technology Russian internet and search company 1.4 NASDAQ

Jan Sinovel WindGroup Co. Ltd.

MainlandChina

Industrials Engaged in developing, designing,manufacturing and marketing largescaleonshore/offshore series wind turbines

1.4 Shanghai

Jun SamsoniteInternational SA

UnitedStates

Retail Engaged in the design, marketing and saleof travel, business and causal luggage

1.3 Hong Kong

Jul Sun Art RetailGroup Ltd.

MainlandChina

Retail Hypermarket operator 1.2 Hong Kong

Global

Source for all charts and tables shown: Dealogic, Thomson Financial, Ernst & Young.



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Number of deals Capital raised (US$b)

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Figure 9: Global IPOs by number of deals and capital raised, by month

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30

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50

60

70

80

90Figure 10: CBOE Volatility Index

(VIX

)

Source: Dealogic, Ernst & Young.

Date up to end of 31 March 2012.

Source: Capital IQ.

The VIX index tracks volatility of S&P 500 index options. Often described as the fear index, it's a useful marker of investorsentiment. When the VIX is above the 20%25% range, it becomes much harder to complete a successful IPO.

During 2007 the VIX bumped along below the 20% level. But it started to climb through 2008, and spiked up to 30%, as the creditcrunch began deteriorating into a deeper nancial crisis. In the nearpanic climate of late 2008, the index rocketed upward,at one point hitting almost 80%. It has trended downward since then, but macroeconomic shocks in 2010 and again in 2011have spooked investors, and sent the VIX heading back up. At the end of 2011, the index re ected an improving environmentfor IPO candidates.

Global




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Interview: David EricksonCoHead of Global Equity Capital Markets at Barclays Capital

We cant have a resurgence inthe IPO markets without betterperformance in the equity markets.How do you think the major indiceswill do this year?

Well see two major drivers for the globalequity markets in 2012. The rst willbe whatever happens in Europe and howthe sovereign debt crisis is resolved.The second will be political change.We have major elections coming in 59countries many of them major markets.We might also see forced political changein some places, like we had in theMiddle East last year. Those are the kindof macro issues that will continue to drivethe heightened volatility weve seen overthe last couple of years.

I think well see relative outperformance

in Asia. We currently have historically lowequity valuations and accelerated earningsgrowth in markets like Taiwan, Philippines,South Korea, Malaysia and Singapore.We expect AsiaPaci c earnings growthto go from 9% yearoveryear in 2011to something like 11% to 13% in 2012and possibly 13% to 15% in 2013.

The US markets are also relatively cheapand earnings growth has been signi cant.When the gures are nalized, we expectearnings growth of something like 14%to 15% for 2011. That may slow down a bitthis year, but companies are still growingpro tability through what we expect to beimproving economic growth.

Why do you expect more venturecapitalbacked companies to seekan IPO this year?

We saw a lot of largecap privateequitybacked companies doing IPOs lastyear; in 2012 we expect to see the riseof smaller, venture capitalbackedbusinesses. In volatile conditions,highbeta, high multiple stocks tend tounderperform, but tend to outperformin improving economic and growthconditions. With many of these venturecapitalbacked companies in higher beta

sectors, as market conditions continue toimprove, we expect more of them to lookto access the public markets for nancing.

What will it take for the global IPOmarkets to get back to normal?

Its hard to say what normal is anymore.Since 2008, market volatility has continuedto be higher and market windows for IPOsare smaller than ever; I think that could bethe new normal. To see larger windowsand longterm lower volatility we needto move some of the macro issues likethe European crisis into the solvedcategory, or at least see them movingtowards resolution in a more signi cant way.

Individual companies are generallyperforming well, even those basedin Europe that have a signi cant amount of

their business outside of Europe. As I said,US companies have had signi cant growthand Asian companies are continuing togrow in a signi cant way.

What do you think are the main questionsthat investors will be asking IPOcandidates this year?

Investors are often asking about exposure,as most investors are still nervous aboutthe European sovereign crisis; investorsremain very focused on implicationsfor growth in Europe for the shortto intermediate term. As a result for thosecompanies that have signi cant businessexposure to Europe, questions will likelyfocus on those trends what they haveseen; what they expect to see neartermand how are they forecasting for themediumterm (assumptions, etc.).

For the IPO market overall, however, I thinkwe are starting to see a more positiveoutlook. Prior to the nancial crisis in2008, investors used to ask questions like,How much cash do you need to weatherthe storm? and How long is that goingto last you? Conditions are morefavorable now, so theyre more likely to ask

about growth and business margin trends all the typical things theyd ask aboutwhen were in a better market.

What trends do you see in the global IPOmarket over the next ve years?

Were seeing companies taking a moreglobal view of the markets at the moment,such as European luxury goods brands

taking their IPOs to Hong Kong. Still, overthe longer term, I think well see marketsbecome increasingly local. What I meanby that is more companies will want to listin their local markets as the liquidityof those markets increases and the poolof available capital grows.

I think some of the Asian markets likeHong Kong, Shanghai and Singapore couldbecome bigger IPO listing venues than NewYork or London. Thats not necessarilybecause companies in Europe and the USare leaving or listing elsewhere. It is largelybased on the thesis that currently there

are fewer Asian companies in public hands,so there is more scope for growth in newlistings in the next several years. Weregoing to see more new market value putinto public hands over the next severalyears in Asia than we are potentiallygoing to see in either the US or Europe.Thats probably the biggest trend that wellsee ve or ten years down the road.

We saw a lot

of private equitybacked companiescompleting IPOslast year; in 2012well see the riseof smaller, venturecapitalbackedbusinesses.

Positive outlookWith companies showing solid earnings growth and investors more upbeat, global IPOmarkets should be stronger this year, says David Erickson of Barclays Capital.

Global



12/32

Asia

Companies planning an IPO will facetougher questions from investorsand lower valuations A tough year, but an upbeat ending. Greater Chinas IPO markets were looking

solid at the start of 2011, but the optimism didnt last. Activity fell dramaticallyat the years midpoint as worries about Europes sovereign debt problems and slowergrowth in the US and other nations hit investor con dence. Funds raised in 2011fell 47% compared to the year before, reaching just US$68.4b. Activity improvedat the end of the year and funds raised in 2011 still exceeded the 2009 total by 33%and listings from private enterprises primarily dominated the IPO market.

China remains the global IPO powerhouse. The Hong Kong, Shenzhen and Shanghaistock exchanges were once again among the top ve global markets, ranked by capitalraised. Despite a very tough year, IPO activity on Greater China exchanges accountedfor 40% of global IPO funds raised in 2011. A big wave of IPOs came to Hong Kongin December, making it one of the worlds leading global IPO markets by IPO fundsraised last year, alongside the New York Stock Exchange. It is interesting to notethat in addition to state owned enterprises, entrepreneurial high growth companiesare accessing the Chinese capital markets as a source of growth capital.

The days of high multiple valuations are over, for now. Many Chinese companiesshelved their IPO plans in 2011 when valuation multiples declined. These companieswill likely come back to the markets in 2012, once valuations begin to better re ecttheir underlying business prospects. But with a heavy ow of IPO deals to choose from,

investors will be more careful about which ones they support and at what price. Investors are becoming more selective. In 2012, investors are likely to ask tougher

questions about the quality of corporate governance and senior management atcompanies seeking funds. This is good news for the longterm evolution of the markets,but it could make life tougher for companies in the short term. Those that dont understandhow high investors have raised the bar in terms of management quality may nd it harderto raise the funds they need.

Hong Kong is drawing Western companies. Expect to see more foreign companiesusing the Hong Kong market to reach Asian investors in 2012. Greater Chinas biggestdeal of the year saw Switzerlandbased commodity trader Glencore International bringa US$10b listing to Hong Kong 1. Italian fashion house Prada SpA boosted itspro le among Asias luxury brand buyers with a US$2.5b deal, also in Hong Kong.

With continuing economic uncertainty in Europe, Hong Kong will be an increasinglyattractive destination for Western companies in 2012.

ChinaGreater scrutiny

1 Glencore International was duallisted on the Hong Kong and London stock exchanges.

10 Global IPO trends 2012


13/32

Figure 11: Greater China IPOs by yearCompanies that dont understand

how high investors have raisedthe bar in terms of management

quality may nd it harder to raisethe funds they need.

Terence Ho, Greater China IPO Leader, Ernst & Young

Figure 12: Key Greater China IPO statistics2009 2010 2011

Number of deals 159 440 ( 177% 1) 361 3 ( 18%2)

Capital raised (US$) $51.5b $129.8b ( 152% 1) $68.4b 3 ( 47%2)

Average deal size (US$) $324.1m $295.1m $189.3mTop ve sectors(number of deals)


Consumer staples (19)High technology (18)

Consumer products (15)



Health care (28)



Consumer products (28)


Industrials ($19.7b)Materials ($5.4b)

Real estate ($5.2b)Media and entertainment ($4.8b)

Energy ($3.5b)

Financials ($51.1b)Industrials ($20.1b)

Materials ($18.5b)High technology ($10.6b)

Health care ($6.1b)


Energy ($6.8b)Retail ($6.6b)

Financials ($6.2b)

Stock exchanges:Hong KongShanghaiShenzhen SMEShenzhen ChiNext(number of deals, capital raised)

56 deals, $21.9b8 deals, $20.4b54 deals, $6.2b36 deals, $3.0b

87 deals, $57.4b26 deals, $27.9b

205 deals, $30.2b116 deals, $14.1b

68 deals, $25.3b37 deals, $15.1b

115 deals, $15.7b128 deals, $12.1b

1Percentage change from 2009 to 2010.2Percentage change from 2010 to 2011.3Excludes Swiss commodities trader Glencore Internationals US$10b IPO, which is duallisted on the London Stock Exchange and Hong Kong Stock Exchange in May.Capital raised for this deal was attributed to London Stock Exchange, the primary stock exchange. If this deal is included, HKEx raised US$35.3b in 69 deals.

Figure 13: 2011 top ve Greater China IPOs by capital raisedIssuemonth



Exchange(s)

Jun Prada SpA Italy Retail Luxury fashion designer 2.5 Hong Kong

Oct Sinohydro Group Ltd. MainlandChina

Energy Engaged in water and hydropowergeneration

2.1 Shanghai

May ShanghaiPharmaceuticalsHolding Co. Ltd.

MainlandChina

Health care Manufacturer of pharmaceuticals 2.1 Hong Kong

Dec Chow Tai FookJewellery Co. Ltd.

Hong Kong Consumerproducts

Manufacturer and retailerof diamond and gold jewelry

2 Hong Kong

Dec New China LifeInsurance Co. Ltd.

MainlandChina

Financials Life insurance broker 1.9 Hong Kong,Shanghai


$ 1 5

$ 2 5

$ 5 4

$ 5 7

$ 1 8

$ 5 2

$ 1 3 0

146

84123

189

97

159

440

2004 2005 2006 2007 2008 2009 2010

$ 6 8

361

2011

Asia

Based on IPO activity on Greater China exchanges (Hong Kong, Shanghai, Shenzhen SME and Shenzhen ChiNext).Source for all charts and tables shown: Dealogic, Thomson Financial, Ernst & Young.



14/3212

Last year we saw fewer IPO dealsand lower valuations. Has that changedthe way Chinese executives think aboutIPOs and the role a deal might play intheir wider plans for business growth?

The fact that so many companies haverescheduled IPOs that were planned for lastyear has certainly had an impact on ourclients business plans. They have had lesscapital at their disposal and the IPO exercise,which takes up a lot of management timeanyway, has been extended. A delayed IPOcan also harm the morale of your employeesand senior management.

The impact however, is not entirelynegative. A delay can give managementmore time to develop the business, makingit more attractive to investors. Weve alsoseen cases where a company that was

too young to go public has been pushed intoan IPO by its banks, only for managementto struggle with the governance demandsthat come with a public listing.

The Chinese markets came under relast year for the poor governancestandards and nancial reportingpractices of some companies.Is tougher regulation needed?

The current listing regulations have workedwell. We may need to netune some ofthem, but the necessary rules on listings,disclosure and privatization are in place.

You are bound to see some companies thatare maliciously fabricating their nancialreports or misleading investors. Thosecompanies should be punished by criminallaw. The bigger problem is the qualityof management and their workingphilosophy. Investors are tightening theirpurses and asking more questions aboutthe quality of the management. They arestaying away from troubleprone sectors,such as agriculture.

When a client comes to you for IPOadvice, what are their main concerns?

Their rst question is usually this: what kindof assessment criteria will an investor use tounderstand my company? The second

question would typically be about timingand valuation; with the third set of questionsrelating to the regulatory and legal aspectsof an IPO. The cost of the process is alsoan issue.

The tougher IPO market hasnt changedour answer to the rst question; typicallywe would talk about company positioning,the general trends in the industry, businessmodels and so forth, but our message ontiming and valuation has changed. We tellcompanies that investors are morecautious about giving high valuationsto IPO candidates and will ask more

questions, especially about their projectedearnings and so forth.

When you look at the companies in yourIPO pipeline, what trends do you see?

Well, they generally come from all sortsof business sectors, but Ive noticed twosectors that are not producing manyIPO candidates right now. The rst is realestate. There was not one real estate IPO,not even an attempted IPO, in 2011.Thats a result of economic tighteningand government policy. The other sectorwhere weve not seen big ticket IPOs is

the internet technology sector. Thats a bitof a surprise. In the early part of 2011we saw quite a lot of activity, with lotsof ecommerce and social networkingcompanies looking for IPOs; thenthe market deteriorated rapidly for techplayers, and their own businessperformance has deterioratedsigni cantly, too.

How do you see the IPO marketperforming in 2012?

We are cautiously optimistic aboutthe prospects of the IPO marketfor Chinese companies this year.

We are cautious because we thinkthe global environment will continueto be volatile. The sovereign debt crisisin Europe and slow business growthin US are hurting sentiment, but we areoptimistic because we think the Chineseeconomy will continue to grow by over 8%this year. We believe that domesticconsumption will continue to grow nicelyand companies will increase theircompetitive spend.

We also think well see better managementteams in place for Chinese companies.We believe the rst half of 2012 will

continue to be marred by the sovereigndebt issues in Europe, but probably intothe second half of the year these issueswill be sorted out or at least people willhave found a way to solve them.

Asia

Interview: Fang FangHead of China Investment Banking at JPMorgan Chase & Co.

A delay to the IPOcan give managementmore time to developthe business, making

it more attractiveto investors.

Management quality?Cautious investors are asking tougher questions about management quality and governance,says JPMorgans Fang Fang.



15/3213

What key trends affected Chinas IPOmarket last year and what do you thinkthe key trends will be this year?

The crisis in the Eurozone has reallyaffected investor sentiment, especially

with regard to IPO valuations. Gone arethe heydays when a company coulddemand fantastic multiples. Also, the USeconomy didnt recover in the way peopleexpected; its actually been quite slow.

Chinas markets will gradually bounceback, but I dont think we are going tosee the sort of IPO valuations weve seenin the past. Investors are getting veryrealistic; more savvy. They are not justbuying a company because it sounds greatand has a great investment story.

If investors are being a little more

discerning, what do you think will bethe hottest sectors or types of companiescoming to the IPO market?

The consumer sector is probably goingto be the hottest one for investors to lookat, along with resources. I think well alsosee some very interesting companiesin the renewable or alternative energyarea; there are a lot of state incentivesto encourage green energy. We are alsoseeing quite a lot of interest in the healthcare area.

We saw a lot of small to mediumsizeddeals coming to the market last year,but many potential issuers suspended theirIPO plans because the valuations on offerdidnt make a lot of sense. We were seeinglow singledigit multiples on publicmarkets, which is very rare and is moreof a private market multiple. There are a lotof strong companies that have alternative

nancing options and are willing to waitfor a better IPO environment.

Has that created an unusually big poolof companies that want to get dealsaccomplished this year? Can the marketsabsorb that number of transactions?

Yes, but investors will be more selective

this year. Deals that are better packagedand structured, that have sensiblevaluations and a very good story in a goodsector theres greater likelihood of themgetting an IPO done and raising the fundsthey want.

Investors however, will look more closelyat the corporate governance structuresand practices of IPO candidates they arefar more attuned to that. Overall, I thinkinvestors will be more practical aboutvaluations and more meticulous aboutscrutinizing companies.

Mainland Chinas equity markets wereamong the worst performers globally lastyear. How do you explain the poorperformance?

The Mainland Chinese markets are verydifferent to the Hong Kong markets.I think for the markets in Shanghaiand Shenzhen, in addition to the Europeannervousness, there were domesticdrivers of volatility. These markets havebeen quite jittery for a long time. Thereare a lot of retail investors and a lotof speculators. But thats understandable;the markets are still in a very early stage

of development.As to 2012, Im cautiously optimistic.I think there is a bit of stability inthe Eurozone and I think we are seeingpositive gures coming up from the USin terms of unemployment and growth.We are even seeing growth in Japan.I think the Hong Kong market has comedown a long way, so there is room

for an increase in terms of valuation.For Mainland China, I think there willbe a focus on domestic consumptionand a relaxation of monetary policyto encourage economic growth.

Do you see Chinese companies changingthe way they think about an IPO and howit ts into their growth plans?

Yes, I do. I think they are more sensitiveto what they need to do if their IPO is tosucceed, not just as an initial fundraisingbut in the aftermarket too. They are usingthe IPO partly as a fundraising platform,and I dont think any of them will wanttheir shares to tank after listing. So I thinkthey will probably be more sensible interms of the aftermarket performanceand will not be asking for ridiculousor aggressive valuations.

They need to be more aware of whatthe investor community expect in termsof corporate governance, transparencyand disclosure. But that is a good thingfor companies and for the market overall.It will mean we get higher quality companiesand better senior management coming tothe market.

Interview: Daniel NgManaging Director and Vice Chairman, Investment Banking Divisionat BOC International, a whollyowned subsidiary of Bank of China Ltd.

Companies are moresensitive about what

they need to do if theirIPO is to succeed.

Asia

Cautious optimismInvestors are still hungry for Chinese IPOs, but they will be more selective this year,says BOC Internationals Daniel Ng



16/32

Asia

Indias IPO markets are wellplaced to recover, once theglobal economy improves

Figure 15: Key India IPO statistics2009 2010 2011

Bombay and National stock exchanges 1 (number of deals)

20 63 ( 215% 2) 39 ( 38%3)

Bombay and National stock exchanges 1 (capital raised (US$))

$4.1b $8.3b ( 102% 2) $1.2b ( 86%3)

Average deal size (US$) $203.4m $132.5m $30.7m

Top two sectors(number of deals)

Energy (5)Media and entertainment (3)


Materials (9)Financials (6)

Top two sectors(capital raised)

Energy ($3.4b)Media and entertainment

($0.2b)


Financials ($609.2m)Materials ($133.5m)

1Most IPOs by Indian issuers are duallisted on Bombay and National stock exchanges.2Percentage change from 2009 to 2010.3Percentage change from 2010 to 2011.

Strong pipeline. After a solid performance in 2010, IndiasIPO market was quiet last year. Worries about the globaleconomy, receding growth and a lackluster secondary marketdampened investor enthusiasm for newly listed companies;80% of recent IPOs traded at a discount in 2011. That affectednew issues, with almost no new IPOs coming to the market.Listings worth around US$7b were either scrapped or deferred,

but the IPO pipeline is strong; 91 companies have led a draftprospectus with the Securities and Exchange Board of India.

A conscious government. Steps have been taken to reviveinterest in the primary markets, and this government initiativeshould improve the situation. Foreign nationals are now allowedto invest in equities directly, with the regulator also taking stepsto make the stock market more investorfriendly. We expectsuch measures to help the IPO market and that once globalsentiments have turned positive, the already prominent foreigninstitutional investment in India will be further encouraged.

The fundamentals are solid. Shortterm concerns aside,the growth prospects for companies in India are good and there

is a healthy appetite for capital. The government is likely

Figure 14: India IPO activity by year

Figure 16: 2011 top 3 India IPOs by capital raisedIssuemonth

Issuer name Sector Issuer business description Capital raised(US$m)

Exchange(s)

Aug L&T Finance Holdings Ltd. Financials Provider of nancial products and services acrosscorporate, retail and infrastructure nance sectors

279 Bombay, National

May Muthoot Finance Ltd. Financials Gold loan company 202 Bombay, National

Mar PTC India FinancialServices Ltd.

Financials Financial services company 97 Bombay, National


$ 3

$ 2

$ 6

$ 8

$ 5

$ 4

$ 8

20

52

73

102

36

20

63

2004 2005 2006 2007 2008 2009 2010

$ 1

39

2011

The growth prospects for companiesin India are good; there is a healthy

appetite for capital.R. Balachander, India IPO Leader, Ernst & Young

IndiaFresh capital to fuel growing consumerism

Based on IPO activity on Indian exchanges.Source for all charts and tables shown: Dealogic, Thomson Financial, Ernst & Young.

to list some large stateowned companies in 2012, whichwill help to improve market sentiment, as the shares arelikely to be available at a discount to retail investors.



17/32

Why not visit the Ernst & Young Global IPO Center of Excellence?

The new Center powerfully showcases the Ernst & Young difference. It is a virtual hub thatpools our global IPO knowledge, experience and resources in one place for the rst time.Visit www.ey.com/ipocenter and make sure you are ready for the IPO journey.

Are you ready?


18/32

Americas

With volatility here to stay,timing is everything IPO market cooled after a strong start. The US IPO market started 2011

in an upbeat mood, but activity dried up in the second half of the year. Europe's debtworries, other nations exhibiting slower economic indicators and a volatile equitymarket were investors main concerns. Nonetheless, total funds raised fell from 2010by only 8% to US$40.2b in 2011.

Pipeline is robust. With the markets volatile and valuations uncertain, the numberof IPOs fell in 2011 from the previous year by 24% to 124, but we expect to see thisnumber increase signi cantly in 2012. There is a strong pipeline of approximately 200companies ready to list once conditions stabilize. Hot sectors include technology, real

estate, oil and gas, pharmaceuticals and consumer retail. We also expect to see a solidlevel of IPO carveouts and spinoffs in 2012. The largest company in the pipelinetoday is the much anticipated IPO of Facebook. Other recognizable names planningto access the US capital markets include Ally Financial, Fender Musical Instruments,Kayak.com, Norwegian Cruise Lines and Toys R Us, to name a few.

US capital markets ramp up for the JOBS Act. In an effort to boost job creationand economic growth, the Jumpstart Our Business Startups Act (JOBS Act or the Act)was enacted on 5 April 2012. The JOBS Act eases some of the regulatory requirementson companies seeking access to capital from both the US private and public markets. TheAct creates a new category of issuer called an emerging growth company 1 that wouldbe able to offer stock through an IPO and phase in certain SEC reporting requirements.Private companies would get greater access to funding without triggering publicreporting requirements. It also would increase the shareholder threshold for mandatoryregistration and expand Regulation A offerings up to US$50m. The Act would also allowprivate companies to raise money through crowdfunding in certain circumstances.

Companies preparing earlier. Markets are likely to remain unpredictable throughout 2012.In response, we see IPO candidates adopting a get ready early, then wait approach.Usually, staying in the pipeline for several months without bringing a deal to the marketwould be a sign of weakness, but in the current environment, that is not the case. Investorsno longer penalize companies that le their IPO intentions and then wait for the optimummoment to list. The imperative is to move fast once a market window opens.

Internet and social media companies showed the way. Many of the successful IPOswe saw in 2011 involved companies from this sector. This partially re ects the USsgrowing dependence on the products and services provided by social media and internetcompanies. The average market value for US social media companies at the time oftheir IPO was double the average market value of rms from other sectors. This alsore ects the fact that these companies tended to oat smaller percentages of theirshares (typically 10% to 15%); we expect this to continue.

Private equity stepped up to the plate. The number of IPOs backed by private equity rmsfell in 2011, re ecting the lower number of deals across the market as a whole, although thenumber of completed private equity listings as a proportion of total IPOs actually increased.2011 saw the largest PEbacked IPO ever the US$4.4b IPO of the USs largest hospitalchain operator, HCA Holdings Inc. Moreover, private equity rms were behind eight ofthe ten largest IPOs. We expect this trend to continue in 2012 as private equity playsan increasingly important role in the IPO market. In addition, venture capital backedcompanies represented 26% of US IPOs by capital raised (US$10.3 billion via 52 deals).

Strong foreign appeal. With the continued economic dif culties in Europe,

we expect more European companies listing on US markets in 2012. The same appliesto those from China, even though their equity markets are maturing rapidly. In 2011,Chinese companies made up 11% of US IPOs by number of deals and 5% by capitalraised (US$2.1b in 14 deals), while European companies comprised 3% of US IPOs bynumber of deals and 5% by capital raised (US$1.9b in 4 deals).

United StatesA waiting game



19/32

Figure 17: US IPO activity by yearWe are bullish about the prospects

for 2012. The pipeline is strongand market conditions are improving.

Jacqueline Kelley, US IPO Leader, Ernst & Young

Figure 18: Key US IPO statistics2009 2010 2011

Number of deals 67 163 ( 143% 1) 124 ( 24%2)

Capital raised (US$) $27.3b $43.5b ( 59%1) $40.2b ( 8%2)

Average deal size (US$) $406.9m $267.1m $324.3mPEbacked IPOs(number of deals, capital raised)

28 deals, $9.0b 84 deals, $15.2b 56 deals, $26.7b

Top ve sectors(number of deals)

High technology (12)Health care (9)Real estate (9)Industrials (8)Financials (5)

High technology (35)Health care (21)

Financials (20)Industrials (17)

Energy (14)

High technology (33)Energy (25)

Health care (16)Consumer products (9)

Real estate (9)



Real estate ($2.9b)Health care ($2.2b)

Energy ($1.4b)

Industrials ($22.0b)High technology ($4.9b)

Financials ($4.1b)Energy ($3.5b)

Real estate ($2.0b)

Energy ($9.3b)High technology ($8.1b)

Health care ($5.9b)Consumer products ($3.9b)

Retail ($3.8b)

Stock exchanges:NYSENASDAQAMEX(number of deals, capital raised)

35 deals, $19.1b30 deals, $8.1b

1 deal, $2m

82 deals, $34.7b76 deals, $8.7b

5 deals, $94.5m

67 deals, $30.5b54 deals, $9.6b3 deals, $103m

1Percentage change from 2009 and 2010.2Percentage change from 2010 and 2011.

Figure 19: 2011 top ve US IPOs by capital raisedIssuemonth


Sector Issuer business description Capital raised(US$m)

Exchange(s)

Mar HCA Holdings Inc. US Health care Operates hospitals and surgery centers 4.4 New York

Feb Kinder Morgan Inc. US Energy Transportation and storage of naturalgas, re ned petroleum and crudepetroleum

3.3 New York

Jan Nielsen Holdings NV US Consumerproducts

An information and measurementcompany that provides data onconsumers' preferences and behavior

1.9 New York

Apr Arcos Dorados HoldingsInc.

Argentina Retail Operator of fastfood restaurants;McDonalds franchisee

1.4 New York

May Yandex NV RussianFederation

Hightechnology

Russian internet and search company 1.4 NASDAQ


$ 4 8

$ 4 1

$ 4 6

$ 5 2

$ 2 7

$ 2 7

$ 4 4

227 228210 219

37

67

163

2004 2005 2006 2007 2008 2009 2010 $ 4 0

124

2011

Americas

1 An emerging growth company (EGC) is de ned as an issuer with annual revenues of less than $1b in its most recent scal year. A company would be eligiblefor EGC status for ve years after its IPO, but would cease to qualify if it (1) issued more than $1b in non-convertible debt in a threeyear period, (2) became alarge accelerated ler (i.e., market capitalization greater than $700m) or (3) had annual revenues exceeding $1b.

Based on IPO activity on US exchanges (NYSE, NASDAQ and AMEX).Source for all charts and tables shown: Dealogic, Thomson Financial, Ernst & Young.



20/32

Americas

Interview: Tom FoxHead of Global Capital Markets, Americas, at UBS

What were the three big trends affectingthe US IPO market last year?

The most prominent trend was the increasein volatility in the equity markets, whichhurt the IPO market. That was caused by a

number of factors; probably the preeminentone was the sovereign debt crisis in Europe,particularly in Greece. The second trendwas the proportion of IPOs oated byprivate equity. That reached an alltimehigh: 65% of the dollars raised in the IPOmarket were connected to private equityand nancial sponsors, versus the 30%to 40% wed see in a regular year.

The third trend was how dif cult it wasto time the IPO market. Some 55% ofthe fundraising last year took place in only7 of the 52 weeks; that just showsyou how quickly the market opened

and closed.What do you think will be the three bigtrends driving the market this year?

Well probably see a continuationof last years trends. Volatility has droppedoff a little bit, but much like we saw in2011, there are going to be windowsof opportunity that are going to openand close. There will be reduced levelsof issuance, uncertainty as to whethercompanies will achieve their pricingobjectives and varied performance inthe aftermarket causing concern about

transaction attractiveness.Well need to see a series of transactionsthat meet the objectives of both sellersand buyers in order to create an attractivebackdrop for a ourishing IPO market.The pipeline is pretty healthy. Its notthe biggest backlog weve seen, but it isthe oldest a number of companies havebeen in registration for an extended

period, in some cases for 9 or 12 months.This year, I think companies will continueto le IPOs in anticipation of perhaps beingin registration for an extended period.They will get into a position to go publicand then wait for the right time.

If a company sits in registration withoutdoing a deal, doesnt that re ect badlyon the business?

Not anymore. We now have private equityrms that are ling documents to go public

for companies that dont even assignunderwriters. When the market turnsfor that company or its sector, theyll bein a position to move quickly.

When companies talk to you aboutbringing an IPO to the market, what kindof questions are they asking you?

Their overwhelming concern is certaintyof execution. They are worried aboutthe number of deals being pulled and theyare right to worry; 2011 was a record yearfor deals being postponed or withdrawn.Theres nothing worse that could happento a prospective candidate than to failat going public. A failure to executethe listing would suggest that people dontbelieve in the enterprise and its prospects.That could have severe businessrami cations.

We tell candidates to make sure they aresound about their story, valuation thesisand positioning and that they understandwhat an attractive market would be,what the likelihood of success is in sucha market and what the likelihoodof success is in the event they get stuckin a market thats less than attractive.

Thats a big change. Their main worrya few years ago would have been morevaluationoriented; execution risk wasnever a primary concern, but weve neverexperienced levels of volatility like thoseweve seen over the past couple of years.

When will the IPO market returnto normal?

You cant have an active new issue marketif the overall market is underperforming;it just cant happen. So you need someoutperformance in the overall market,for one. Two, you need volatility reducedconsistently Id say the VIX Index needsto be around 20 or below for a solid period.Thirdly, we need to see some consistencyin sellers achieving their price objectives,i.e., oating in or above their desired pricerange; as well as seeing buyers achieve

relatively attractive outperformancein terms of how IPOs trade relativeto the market. Both sellers and buyersneed to feel they are getting value fromparticipating in the IPO process.

The main worry a fewyears ago would havebeen more valuation

oriented; executionrisk was never a primary concern.

Waiting for a windowIPO candidates should get ready early and bide their time, says Tom Fox of UBS.



21/32

Americas

The IPO markets were quiet in 2011,but we expect to see a strong

recovery in 2012.Paulo Sergio Dortas, Brazil IPO Leader, Ernst & Young

Figure 21: Key Brazil IPO statistics2009 2010 2011

So Paulo Stock ExchangeNumber of deals

6 11 ( 83%1) 11 (0 3)

So Paulo Stock ExchangeCapital raised (US$)

$13.1b 3 $6.4b ( 51%1) $4.4b ( 31%3)

Average deal size (US$) $2.2b $580.6m $401.1m

Top three sectors(number of deals)

Financials (3)Health care (1)

High technology (1)

Industrials (4)Energy (2)

Real estate (2)

Retail (4)Consumer products (2)

Energy (1)

Top three sectors(capital raised)

Financials ($12.2b)Health care ($0.4b)

High technology ($0.3b)

Industrials ($2.8b)Energy ($1.6b)

Real estate ($0.9b)

Retail ($1.4b)Energy ($905m)

Health care ($676m)1Percentage change from 2009 to 2010.2Percentage change from 2010 to 2011.3Includes 2009s largest IPO, Banco Santander Brasils $7.5b listing on the NYSE and Bovespa.

Figure 22: 2011 top ve Brazil IPOs by capital raisedIssuemonth

Issuer name Sector Issuer business description Capital raised(US$m)

Exchange(s)

Feb QGEP Participacoes SA Energy Oil and gas exploration company 905 So Paulo

Jun Qualicorp SA Health care Fullservice health care bene ts administratorsand health management services providers

676 So Paulo

Apr Magazine Luiza SA Retail Household appliances and electronics retailer 566 So Paulo

Jan Arezzo Industria

e Comercio SA

Consumer

staples

Womens shoes and sandals manufacturer 336 So Paulo

Apr T4F Entretenimento SA Consumerproducts

Live entertainment company 319 So Paulo

Figure 20: Brazil IPO activity by year


$ 1

$ 2

$ 8

$ 2 8

$ 5

$ 1 3

$ 6

5 6

28

63

4 611

2004 2005 2006 2007 2008 2009 2010

$ 4

11

2011

BrazilPrivate equity leads the way

Solid economic growthcould drive a doublingof IPO activity this year Brazils IPO market suffered in 2011. Despite being one

of the most attractive emerging markets right now, with a strongGDP growth rate of 4%, IPO funds raised fell by a third toUS$4.4b. There were 11 deals in the year, of which all but 1 listedin the rst six months. Nine of the IPOs that succeeded werebacked by private equity funds. In total, 13 companies registeredtheir plans to go public and only 2 changed their minds. Many

of them sought private equity nance instead. On the upside,interest rates fell and in ation was brought under control.

IPO activity will pick up signi cantly this year. We expectto see around 20 successful deals, about twice the numberthat listed last year. There are several private equity IPOsin the pipeline and some multinational companies are likelyto list their Brazilian subsidiaries. Many companies wantto go public in Brazil and they are just waiting for the rightmoment since they were sidelined by global markets problemslast year, including the European crisis and slower globaleconomic growth. We could also see more South Americancompanies from outside Brazil attempt an IPO and more activityon Bovespa Mais, the market for smallercap companies.

Based on IPO activity on So Paulo Stock Exchange.Source for all charts and tables shown: Dealogic, Thomson Financial, Ernst & Young.

Hot sectors will be services, oil and gas and infrastructure,because the country is hosting the 2014 football WorldCup and the 2016 Olympic Games, which requiresstrong investments in many sectors.



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EuropeA bumpy road ahead

Continued volatility isthe theme for 2012, as Europetries to solve its debt problems Europes IPO markets were encouragingly resilient in 2011. The amount

of funds raised across the regions markets fell by 19% to US$29.7b, but the numberof successful listings actually increased by 6% to 266 deals. As with other IPO marketsaround the world, most of the activity took place in the rst half of the year.

Performance varied enormously at a country level. The IPO market in Polandwas very active. There were 22 listings on the Warsaw Stock Exchanges increasinglymature main market and a record 123 on NewConnect, its market for younger

technology businesses. In France, by contrast, 2011 saw the lowest total capital marketnancing including not only IPOs since 1995. Activity was also slow in the UK,

which is normally the regions IPO powerhouse.

No quick x to economic troubles. Europes sovereign debt crisis weighed heavilyon its IPO markets last year. The fear that Greece might default on its debts, addedto the inability of European policymakers to nd a way forward, has damaged sentiment.But as we move into 2012, there is greater con dence that, while a oneoff x maynot be found, there is at least a growing consensus about how to deal with the problem.

IPO candidates will need to be more exible. Market volatility is likely to reducesomewhat in 2012, but it will still be dif cult for companies to get the timing oftheir IPOs right. Companies, advisors and investors will need to nd a way to navigatethis highly uctuating market to nd common ground, particularly concerning pricing.Trends we expect to see in the market are: companies oating a smaller percentageof their equity; larger syndicates, so that companies are marketing to a broader investorbase; more focus on earlier marketing; as well as efforts to nd anchor investors.

Companies will follow the money. As conditions in Europe remain unpredictable, wemay see more IPO candidates looking to oat on an overseas market, perhaps as a duallisting. Certainly, candidates will question whether they should simply list on their homemarket by default. Many will have good strategic reasons for listing abroad, especiallythose that want to develop awareness of their brands in Asia. We are likely to seeemerging markets actively competing to attract European companies. An increasinglyimportant goal will be to combine a companys business strategy with nancing strategy.

The purpose of a stock exchange. Offexchange transactions represented more thana third of equity traded in Europe last year. With so much activity bypassing traditionalmarkets, we may see more IPO candidates looking at alternative ways of raising equity

nance. New intermediaries such as crowdfunding portals are giving companies directaccess to investors and important newcomers like multilateral trading facilities enteringthe listing space, for example, could become increasingly popular in primary markets.



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Figure 23: European IPO activity by yearIPO candidates will need

to be exible this year, keepingan open mind about when they

list, and where.Dr. Martin Steinbach, EMEIA IPO Leader, Ernst & Young

Figure 24: Key Europe IPO statistics2009 2010 2011

Number of deals 62 252 ( 306% 1) 266 ( 6%2)

Capital raised (US$) $7.4b $36.7b ( 396% 1) $29.7b ( 19%2)


PEbacked IPOs

(number of deals, capital raised)

3 deals, $0.8b 18 deals, $9.5b 11 deals, $2.8b

Top ve sectors(number of deals)


Financials (7)Real estate (6)Health care (5)

Materials (31)High technology (29)

Consumer products 3 (28)Industrials (28)

Consumer staples (26)

Consumer products (44)Industrials (41)

Materials (30)High technology (26)

Energy (25)


Energy ($2.3b)Financials ($2.2b)Industrials ($1.6b)

Real Estate ($0.6b)Materials ($0.2b)

Energy ($8.3b)Materials ($6.4b)


Retail ($3.5b)

Materials ($13.3b)Financials ($6.4b)

Energy ($2.8b)Industrials ($2.7b)

Consumer staples ($1.3b)

Stock exchanges:London MarketLondon AIM

EuronextAlternextDeutsche Brse 4(number of deals, capital raised)

2 deals, $0.7b7 deals, $0.6b

3 deals, $3.1b1 deal, $7m3 deals, $78m

18 deals, $8.9b40 deals, $1.5b

5 deals, $2.7b5

5 deals, $66m14 deals, $3.1b

9 deals, $13.9b 6 33 deals, $820m

1 deal, $82m11 deals, $95m14 deals, $2.3b

1 Percentage change from 2009 to 2010.2 Percentage change from 2010 to 2011.3 Consumer products include consumer services.4 Deutsche Brse consists of listings on General, Prime and Entry standards.5 Includes Russias United Co. Rusal Ltd. US$2.2b IPO, which is duallisted on Hong Kong Stock Exchange and Euronext.6 Includes Swiss commodities trader Glencore Internationals US$10b IPO, which is duallisted on London and Hong Kong stock exchanges in May.

Figure 25: 2011 top ve Europe IPOs by capital raisedIssuemonth



Exchange(s)

May Glencore International plc Switzerland Materials Diversi ed natural resources group 10 London, Hong KongJul Bankia Spain Financials Commercial bank 4.4 Madrid

Jul JSW SA Poland Materials Coal producer and distributor 1.9 Warsaw

Jul Banca Civica SA Spain Financials Commercial bank 0.9 Madrid

Apr Nomos Bank NewMoscow Bank ZAO

RussianFederation

Financials Commercial bank providing retailand merchant banking services

0.8 London


$ 6 7

$ 1 0 9

$ 1 0 0

$ 7

$ 7

$ 3 7

301

397

609587

201

252

62

$ 3 4

2004 2005 2006 2007 2008 2009 2010 $ 3 0

266

2011

EMEA

Based on IPO activity on European exchanges.Source for all charts and tables shown: Dealogic, Thomson Financial, Ernst & Young.



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EMEA

How do you assess the performanceof Europes IPO market in 2011?

The key trend last year was that the marketdid not manage to nd an equilibrium;there wasnt a good balance between

investor demand for IPOs and supply.In that regard, we havent had a proper IPOmarkets since 2007. In 2012, Im hopingthat the market will continue to stabilizeand well see a reversal of that trend.

Already this year weve seen marketvolatility come down and investorcon dence grow. Were seeing manypotential issuers starting to reengagein their preparations for an IPO.Remember, there is a big backlog of verysubstantial IPOs that are keen to cometo the market as soon as it is open. I thinkthat once there have been a couple

of successful listings, well see a big waveof IPOs hitting the market.

What would indicate a return to anormal market and when do youthink that might happen?

We need to see a decent number of IPOscoming back to, say, 2007 levels, withsome of them pricing towards the top endof their range. If you look back to varioushistoric IPO cycles, it takes a few verysuccessful IPOs that show superior returnsin the aftermarket to reengage investors.That encourages broader books, with

a couple of hundred investors participatingin an IPO and not just a few dozen.That then breaks the power of individualinvestors, resulting in more balanced deals.You also need good quality names comingto the market.

So its not just a questionof the wider economic environmentneeding to improve?

You do need support from the broadermarket, but that alone will not give you

a great IPO market. You need somesuccessful deals. A portfolio managershould not have to justify a decisionto invest in the IPO asset class, it should bea normal part of his business. An IPOshould not be regarded as something thatis, by de nition, an investment with a highrisk relative to returns.

What trends do you see in the meantime?

I expect to see a continuation of corporatespinoff IPOs, with larger conglomeratesof oading operations in an attemptto focus on their core business. There will

always be a stream of sponsorled IPOs,but the sponsors might wait a bit longerbefore they come back to the market.I think well see more IPOs coming fromEuropes emerging markets; thereare some very good companies in EasternEurope lining up to hit the market as soonas investor appetite improves.

Do you see more European companiestaking their IPOs to the US or Asiainstead?

We are seeing some of that, but not ona big scale. Technology companies mightgo to the US because there is a verydifferentiated and large investor base.Weve seen some US tech IPOs happeningat good valuations, with good subscriptionlevels. Weve also seen some IPOs inthe luxury brand category, like Pradaand a couple of others, go to Hong Kong,

but not too many. These are brands thatenjoy very high name recognition and highsales growth in China and Southeast Asia,so they can attract good valuationsin Hong Kong. They need to have a storywith a very speci c Asian angle in orderto be successful.

Whats your outlook for the Middle East?

Political unrest in the region createda lot of noise and uncertainty last year,which basically stopped issuance activity;whenever there is a wider downturn,emerging markets always suffer more.Thus, the appetite to invest into theseregions was almost nonexistent.

This year will be different. I thinkthe political unrest is ending in mostcountries. Were already seeing a lotof interest about emerging marketinvestment. It may take some time for thatto develop into a trend, but once we seemore in ow into emerging market fundsand regional funds, well havethe conditions needed for IPOs to besuccessful. We already have a numberof mandates with highquality assets.

Interview: Georg HanselChairman of EMEA Equity Capital Markets at Deutsche Bank

An IPO should notbe regarded as

something whichis, by de nition,an investment witha high risk relativeto returns.

Open for business? A few successful IPOs are needed to restore investor con dence,says Deutsche Banks Georg Hansel.



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What were the main trends in the IPOmarket last year?

It was a year of two halves. In the rst,we saw a lot of IPOs and other equitycapital market transactions launched.

There were 26 deals of over US$200min Europe, the Middle East and Africa.In the second half of the year we saw noneon that scale. Even among those 26 deals,some of them were special investmentvehicles, not traditional IPOs.

We also noticed that investors were evenmore selective about IPO quality and thestory behind the business. In 2010, theywould at least look at most deals; in 2011,they took a binary approach they wouldscrutinize a deal in great detail, or noteven consider it.

Another important trend is that thewindow inside which a company can getan IPO away can be very short, can openand close very suddenly and can remainclosed for a long time. We saw this in2010, but last year it became morepronounced. Id say the market in 2011was open for ve or six months and thenshut for six months.

If the IPO window keeps opening andclosing, why is that the case?

Its a question of volatility. Every time thereis a macroshock or something to hurtinvestor con dence, the markets becomemore volatile. That increases the risk forIPO investors in the bookbuilding phaseand they want to see a discount for thatrisk in the pricing. The higher the volatility,the greater the discount they will demand.

The VIX Index has been a good indicator ofwhether the European IPO market is open(The VIX, the socalled Fear Index, tracksvolatility on the S&P 500). When it goesabove 20%, it is much harder to get an IPO

away. Since July 2011, the VIX has beenabove 20%, trading as high as 45% untilChristmas. The challenge has been thatbuyers and sellers views on risk discountsand valuation have been too far apart.

What are the implications for a companythat wants to do a deal?

Companies thinking about an IPO need toeducate their target investors much earlierin the process. They have to spend moretime on socalled anchor marketing, tellingtheir story to investors, explaining thatthey have a solid story, strong track recordand a good management team. They needto secure buyin, which they can build onquickly once a favorable market windowopens. We have seen this already in 2010,when we launched the IPO of Chr. HansenHolding within a short market window

before the summer break.What will be the main IPO market trendsfor 2012?

Number one, I expect the volatilityto continue. The market windows will openand close quickly; it probably wont be like2011, where the IPO market waseffectively closed for the second half.Second, I think well also see somecarveout IPOs or spinoffs this year,where companies unload noncore assets,rather than mostly sponsordriven IPOs.Third, well see Europe taking more

of a USstyle approach to IPO marketing the process will be condensed andquicker, reducing the market exposure.

Looking at the companies in your IPOpipeline, what are their main concernsabout coming to the market?

They want to know they will achievea reasonable valuation and they wantsome sense of con dence about thatbefore they go out to investors. Also, they

need to access IPO funding to nance theircapital expenditure and growth plans, sothey are considering whether they mightgo for a smaller listing than they wouldhave done in a more bullish IPO market.They are maybe looking at oating only15% to 20% of market capitalization, whereonce they might have aimed for 30% to40% as a minimum oat. The option is tobite the bullet on valuation and accept themarket pricing, reduce the size of the oatto get it out and listed, and then do followon placements later.

Whats the IPO picture in the Middle Eastand how has the Arab Spring changedthe way you look at the region?

Corporate governance and politicalstability remain key focus points.A successful IPO needs to be a sizable

company with a strong story that canbenchmark itself against European peers.Most will also take a listing in the US,London or an Asian market to add somequality. Weve also seen companies usingpreIPO convertible nancing structureswhile they wait for the listing environmentto improve.

The Arab Spring underlines the needto take a countrybycountry viewof the region, as they are all very different.Weve always looked at the Middle East thatway, so theres no change in that regard.

The challengehas been that buyersand sellers views onIPO valuations havebeen too far apart.

Interview: Klaus H. HessbergerCoHead of Equity Capital Markets in EMEA, at JPMorgan

EMEA

Are you ready?European companies planning an IPO must be ready to move more quickly,says JPMorgans Klaus H. Hessberger.



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EMEA

Figure 26: Middle East and Africa IPOs by year

Figure 27: Key Middle East and Africa IPO statistics2009 2010 2011

Number of deals 22 48 ( 118%) 31 ( 35%)

Capital raised (US$) $2.4b $5.0b ( 108%) $1.8b ( 64%)


Top two sectors(number of deals)

Financials (12)Telecommunications (4)

Financials (7)Industrials (8)

Consumer products (7)Finan

Documents

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