Floating feeling: 2021 a bumper year for equity capital markets

CSL’s factory in Broadmeadows, Victoria. CSL raised $US5bn from its share placement to help fund the acquisition of Vifor Pharma, making it the largest Australian equity raising this year. Picture: Aaron Francis

The Australian equity capital markets experienced their busiest period ever during 2021, a year that saw the largest ever follow-on equity raising linked to CSL’s $US11.7bn ($16.2bn) purchase of Vifor Pharma.

ECM operatives carried out over 1000 issues, beating 2020, according to data from Refinitiv.

And 2020 was already a high, with mammoth equity raisings by companies to prepare for the pandemic.

In 2021 there were more initial public offerings than ever before as company owners took advantage of buoyant market conditions, while investors looked to put money to work at a time of low interest rates and redeploy cash they had received in a record year for mergers and acquisitions.

“Two key drivers fuelled the ECM activity during 2021,” said UBS head of ECM for Australia and New Zealand, Alex Dignam.

The first was high equity market values and an attractive backdrop for vendors to undertake an IPO, the second dry powder from M&A.

Mr Dignam said another factor was inflows into investment funds due to low interest rates.

Goldman Sachs head of ECM for Australia and New Zealand, Ian Taylor, said the high level of activity was in line with what was happening in the US, where a large number of IPOs and block trades were coming to market.

Mr Dignam said that for deals that unfolded in Australia, there was a stronger presence of US investors this year than in previous years. “Australian ECM deals are dominated from a demand perspective from domestic investors but there has been very active participation out of the United States,” he said.

Refinitiv’s preliminary review of Australian investment banking activity for the year to December 22 showed $US41bn was raised, up 14.4 per cent on last year.

That is the highest since 2015 when companies sought $US44.1bn from the Australian market.

For IPOs, $US8.3bn was raised, up 148.9 per cent on last year, making it the highest since 2014.

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Five biggest raisings of 2021

• CSL: $US5bn (December) – Bank of America, Goldman Sachs

• Transurban: $US3bn (September) – Barrenjoey, Macquarie, Morgan Stanley, UBS

• Afterpay: $US1.2bn (February) – JPMorgan, Goldman Sachs, Citi

• Bank of Queensland: $US1bn (February) – Goldman Sachs, UBS

• Aristocrat Leisure: $US970m (October) – UBS, Goldman Sachs

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Follow-on offerings reached $US30.2bn in proceeds, down 6.1 per cent on last year’s period.

Convertible offerings raised $US2.7bn, bolstered by Afterpay’s $US1.2bn convertible bond issuance in February.

The largest float of the year involved the mid-year listing of Property Exchange Australia, raising $US889.2m.

CSL raised $US5bn from its share placement to help fund the acquisition of Vifor Pharma, making it the largest Australian equity raising this year.

According to Refinitiv, the top four ECM deals behind CSL’s were Transurban’s $US3bn raising to fund the purchase of a WestConnex stake, a $US1.2bn convertible bond launched by Afterpay, a $US1bn raising by Bank of Queensland to fund its purchase of ME bank and a $US970m raising by Aristocrat Leisure to fund the purchase of Playtech.

Some of this year’s other largest floats included Judo Financial, SiteMinder, APM, Ventia, 29Metals and Vulcan Steel.

Goldman Sachs was involved in the listing of SiteMinder, Judo Financial and GQG Partners.

In all cases, between 60 per cent and 80 per cent of the shares for the deals were sold early to cornerstone investors.

Mr Dignam said transactions involving high growth and tech enabled businesses were popular.

“SiteMinder it is an example of a global business that is world class and high growth and broad appeal,” he said.

While a large rush of IPOs hit the boards in the second half of the year, the performance of some in the aftermarket was disappointing, including GQG Partners and APM.

Mr Taylor said this came with a more volatile market environment in the last eight weeks of the year.

“The aftermarket fell away,” he said.

Mr Dignam said he believed for 2022 would have a similar theme to this year.

“The backdrop for IPOs is strong,” he said.

“The one change for next year is rising inflation in Australia.”

However, investment funds were still seeing strong inflows.

“There are plenty of assets in private equity portfolios that would make IPO candidates,” he said.

There were a lot of technology companies in the venture capital space, he added.

Mr Taylor said high listed company valuations, low market volatility and a robust 2022 outlook all contributed to the buoyant conditions of 2021, but he predicted a more subdued 2022 for floats.

“With the level of activity, we have burned through the backlog,” he said.

He said while the Omicron Covid-19 variant meant an uncertain world in 2022, the macro economic outlook was positive, company balance sheets were in a strong position and consumers were in a strong position.

Of all the ECM deals in 2021, 22.7 came from materials, up 34 per cent from last year, while financials had 15.1 per cent market share and healthcare 13.9 per cent.