There were no cross-border Initial Public Offerings (IPOs) on African exchanges in the first half of 2021 (H1 2021) according to new Baker McKenzie analysis, H1 IPO Snapshot: Unfolding Trends for 2021. However, the continued global demand for special purpose acquisition company (SPAC) IPOs reached African shores in the first half of 2021 - with a cross-border listing from a South African SPAC issuer - African Gold Acquisition Corporation - into the New York Stock Exchange. Globally, however, Baker McKenzie’s analysis shows that the continued global demand for SPAC deals, as well as current high liquidity and investor enthusiasm, caused capital raising to surge to new highs in the first half of 2021, with the bulk of companies preferring to list their IPOs locally. Globally, a total of 1,263 deals valued at USD 294 billion are expected to be completed by June 30, 2021, with domestic IPOs accounting for 77 percent of all listings during this time. 

Commenting on lack of cross-border IPOs as a form of capital raising in Africa, Wildu du Plessis, Head of Africa at Baker McKenzie, explained, “Issuers and investors in Africa are waiting for economic and legal certainty and effective regulation to be implemented, combined with the need for deeper liquidity, before they go ahead with capital raising in the continent. It is also worth noting that the region tends to lag the global pattern by a few cycles, so we could see a similar rising demand for African IPOs in future years, possibly boosted by the launch of the African Continental Free Trade Area at the beginning of this year.”

Regarding the SPAC listing by African Gold Acquisition Corporation, Du Plessis explained that SPACs are formed to raise capital through IPOs, with the capital raised then used to acquire existing companies (or invest in existing businesses) the identities of which are not disclosed or even known at the time of the IPO. Even though some indication is given at the time of the IPO as to which industries will be targeted, investors in these SPACs are essentially asked to invest in a somewhat uncertain future. The African Gold Acquisition Corporation has noted it could potentially target any industry, but it will mainly focus on target companies with operations in the gold mining sector. African investors and issuers with interests in the mining sector in Africa will be watching this SPAC closely, with the possibility that this could ignite a growing trend for this type of capital raising in Africa down the line.

Du Plessis explained that while cross-border IPOs are currently not used as a way to raise capital on the continent,  the next few years could possibly see increased capital raising activity for companies in industries particularly hard hit during COVID-19, including hospitality and transportation. The technology sector is also expected dovetail into life sciences, and this could result in a move towards capital raising via IPOs for technology companies with operations in Africa. New and innovative technologies (particularly among biotech, fintech, edtech, software AI and health tech) continue to emerge at an unprecedented pace, expedited by COVID-19 and the need to digitally innovate business operations to survive in a virtual environment could boost regional capital raising transactions.

“Further, no matter where businesses are in the world or what industry they operate in, Environmental Social and Governance (ESG) has become one of the hottest topics for businesses, their boards, their customers and their employees. While in previous years, some viewed the inclusion of ESG elements to be at the expense of returns and efficiency, among other things, this has rightly shifted to viewing ESG strategy as a prerequisite to business success. ESG is fast becoming an essential element for successful transactions in Africa,” Du Plessis said.

Global IPOs

The Baker McKenzie analysis notes that at the global level this year’s capital raising has reached a new high watermark, a 220 percent spike compared to the first half of 2020. It is the first time that over USD 200-billion was raised during the first half of any year, and deal volume also saw a strong 143 percent increase in H1 2021. 

US- and China-based issuers led the pack in the first half of 2021, with 424 listings and 211 listings respectively, followed by Canada (63), Australia (60), and Japan (53).

Cross-border activity also grew globally, with deal volume increasing by 91 percent year-over-year and value increasing by 232 percent during the same time. The strong recovery of Mainland China’s economy provided a boost in cross-border listings to Hong Kong and the US.

“The first half of year was dominated by unprecedented SPAC activity, a trend that is continuing to make its way through markets around the world,” said Helen Bradley, Baker McKenzie’s London-based Global Chair of Capital Markets. “And though the appetite for SPACs may have begun to wane in the US, all signs indicate that SPACs are here to stay and are likely to be allowed in other jurisdictions as well.”

Top exchanges

The Nasdaq and the NYSE were the top exchange destinations in H1 2021, raising over USD 160-billion across 519 IPOs. Over 80% of IPO issuers were US-based.

Continued growth in Mainland China domestic listings bolstered the performance of the Shenzhen and Shanghai exchanges. Other strong performers included the ASX, TSX (mainboard, TSXV and NEX Board), Japan Exchange Group, KRX and HKEx (mainboard and GEM).

Euronext Amsterdam was boosted by two cross-border megadeals, worth over USD 1-billion each, bringing capital raising for Euronext to over USD 4-billion for the first time since 2018.

Top industries

The financial sector led in terms of value (USD 124-billion raised) and volume (455 deals), most notably due to the number of SPAC IPOs, with over 350 SPACs going public to raise USD 103-billion. Technology and Healthcare came in second and third in the rankings for both value and volume, as the COVID-19 pandemic helped to drive investments into these sectors, particularly in China.

Other Trends

In addition to the rise in SPACs in the US, other regions may also be moving to attract SPAC activity. In London, Lord Hill’s review of the UK’s listing regime was published in an effort to help the LSE gain a more competitive edge against other exchanges post-Brexit. One recommendation is to remove the automatic suspension of SPACs. Euronext, Hong Kong and Singapore are also exploring SPACs due to investor demand.

In the US, headwinds are building for SPACs. The US capital markets landscape is expected to shift in the coming months, due to the new US administration and SEC chair. Various regulatory and disclosure changes are considered likely, including an increased focus on ESG reporting requirements (including DEI disclosures), closer scrutiny of SPACs and more enforcement proceedings by the SEC.