The migration of foreign-based initial public offerings to U.S.-based stock exchanges is expected to increase in 2011, according to a new study by BDO USA LLP.
Capital markets executives at leading investment banks surveyed by the accounting and consulting firm believe foreign businesses — which accounted for more than a third of U.S. initial public offerings (IPOs) in 2010 - will play an even larger role in the U.S. IPO market in 2011. A majority (59 percent) of the bankers predict that foreign businesses will represent an increased percentage of IPOs on U.S. exchanges in 2011, compared to 29 percent who feel the percentage will remain stable and 12 percent who anticipate a decrease. Asia – driven by the soaring Chinese economy - was seen as the most likely source of these foreign-based IPOs.
In a continuing trend of their declining role in the global IPO market, U.S. exchanges generated less than 17 percent of world-wide IPO proceeds in 2010. However, the capital markets community appears to see this trend ebbing in 2011. Thirty-nine percent of the bankers surveyed believe the U.S. will increase its share of the global proceeds pie in 2011 and a similar proportion (36 percent) anticipates the percentage will stay about the same. Just 25 percent of the respondents expect that the U.S. share of global IPO proceeds will shrink further in 2011.
"The shift in IPO activity from the U.S. to Asia in recent years is understandable given the hyper-economic growth taking place in China, combined with the financial crisis that took place in the more established economies,” said Wendy Hambleton, a partner in the Capital Markets Practice of BDO USA. “However, this type of growth also leads to concerns about bubbles and the due diligence being performed on these offerings. Chinese companies and other emerging market businesses that want to do business internationally will increasingly be lured to the high-standards of U.S. exchanges. The stricter accounting and disclosure requirements are more costly, but this is far outweighed by the increased access to capital, liquidity and the cachet associated with NYSE or NASDAQ ticker symbols."
The 2011 BDO IPO Outlook survey examined the opinions of 100 capital markets executives at leading investment banks regarding the market for initial public offerings in the United States in the coming year. A strong majority (61 percent) of the bankers identify the growth opportunities associated with emerging market economies as the greatest reason for the shrinking percentage of U.S. IPOs in total global IPO proceeds. Just under a quarter (23 percent) cite the increased federal regulation of U.S. exchanges as the primary culprit, while a small proportion (13 percent) mention the high cost of raising capital in the U.S.
Asia-based businesses will continue to dominate foreign-based offerings on U.S. exchanges. Two-thirds (66 percent) of the bankers forecast Asia as the region spawning the most U.S. IPOs. Latin America (16 percent) was the only other region receiving serious consideration.
In terms of IPOs taking place on foreign exchanges, Asia will continue to be the most popular region. However, investment bankers predict Shanghai (41 percent) will unseat Hong Kong (28 percent) as the most popular exchange for foreign IPOs in 2011. London, at 11 percent, finished a distant third.
Seventeen percent of U.S. investment bankers surveyed by BDO say the movement of IPO activity to emerging markets has led to a decrease in their fees during the past year. However, almost three-quarters report that the movement to emerging markets has had no impact on their fee structure, and 10 percent indicate it actually led to an increase (10 percent) in their fees.
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