Middle East IPO markets raised USD10.8 billion through 87 deals, says Ernst & Young

Most Middle East exchanges were down for the year, except for Oman, Bahrain, Kuwait and Egypt. The Saudi exchange, lost more than half its value and Dubai's exchange fell by two-thirds since its peak in the previous year, the report adds.

However; Omar Bitar, Managing Partner, Business Advisory Solutions, Ernst & Young Middle East, points out that according to the report, "Middle East market instability has not seriously dampened investor appetite for IPOs. In 2006, Middle East IPO markets raised US$10.8 billion through 87 deals. A strong outlook for the next 12-24 months includes large-scale privatizations and infrastructural projects, indicating that the instability is bound to reverse," he explained.

The report identifies that the key IPO trends of the last 18 months that reflect the effects of rapid globalization are flourishing stock markets awash in liquidity, vibrant growth in the emerging markets, escalating rivalry between the world's stock exchanges, the boom in large listings on local exchanges, and the proliferation of alternative financing options, especially private equity's emergence as a key player behind so many large IPOs.

"The availability of capital around the world and a surge in IPO-ready companies worldwide are rapidly changing the face of the world's capital markets," Greg Ericksen, Global Vice Chair, Strategic Growth Markets at Ernst & Young, said. "Eager investors seeking high-growth opportunities are heating up the fast-growing emerging markets, prompting the rise of more world-class financial centers as local exchanges become more liquid, stringent, and up-to-date—all of which has led to a sharp rise in large listings on local exchanges."

As capital becomes more global, the vast majority of IPOs stay local, according to the report. 90% of companies around the world choose their primary place of listing in the market where they operate. The growth of local liquidity and international investor interest has enabled even the largest of companies to list at home.

"Most companies prefer to stay local for their IPOs since their customer base is usually local, and it is local investors who best understand their business," Ericksen says. "For most companies, the local markets are where infrastructure, investors and liquidity can most easily be found, and where investor relations, regulatory frameworks, and market expectations are the most familiar."

Bitar added, "With a few exceptions, companies in the Middle East do not seek to list beyond national boundaries. Regional companies are more likely to have a successful IPO here in the Gulf than they would in a foreign market. Historically, investors have made hefty gains from investing in regional IPOs. Therefore key decision makers in pre-listed companies still consider the Middle East market as a leading one for IPOs."

In 2006 the amount of capital raised worldwide by companies going public reached a record US$246 billion, up from US$167 billion the previous year. China's companies raised the most capital at US$56.6 billion, followed by US companies with total proceeds of US$34.1 billion, and Russia's companies with US$18 billion in funds raised. The number of listings was also up - to 1729, the highest number in a calendar year since 2000. The US launched the highest number of IPOs with 187 listings, followed by Japan with 185, and China with 175. The trend of very active IPO markets has continued in the first quarter of 2007 with US$36 billion being raised in 372 IPOs worldwide, an increase on the same quarter of last year in terms of both capital and the number of listings.

The emerging markets remain the wellspring of the world's most vibrant growth stories, with China fuelling Asian markets, and Russia driving European markets. Combined IPO activity in the BRIC (Brazil, Russia, India and China) countries increased to US$86 billion in 2006, up from US$29 billion in 2005, while the number of listings almost doubled to 279.

"Super-sized IPOs from the emerging markets, especially privatizations in China and Russia, added substantially to the global amount of capital raised in 2006, accounting for almost half of the top 20 IPOs in value," Ericksen notes. "Although relatively large companies are still going public in 2007, this year's top IPOs have not been nearly as sizeable as last year's mega deals. In the first quarter of 2007, the top three IPOs raised about US$2 billion each and the packed IPO pipelines indicate a diverse range of large, profitable companies ready to come to the market on the world's exchanges in the months to come."

Other key findings of the report include:

• The number of world-class financial centers increases as local exchanges from around the world hosted many of the top 20 IPOs in 2006—including South Korea, Japan, Italy, Switzerland, India, Germany, Netherlands, and France.
• The heated rivalry among the world's exchanges for cross-border listings that led to the NYSE Euronext merger is likely to drive more alliances and mergers among world exchanges in the near future.
• Private equity firms have become key players in the IPO and M&A markets and de-equitizations or so-called 'public-to-private' transactions are an emerging global trend. Cash-loaded private equity firms are scooping up well-established public companies and taking them private again. The value of companies taken private in 2006 was US$150 billion—a new record and almost triple the amount in 2004.
• A trade sale through M&A is still viewed by many global companies as an appealing alternative to a traditional IPO. Last year, global M&A volume rose to an all-time high of US$3.8 trillion and the deal-making pace looks unlikely to slow down this year.