JULY 2013
PwC
21
“IPO activity rose substantially during the second quarter, bolstered by early gains in a strong, albeit volatile, equity market, and an increased appetite for risk among investors,” said Henri Leveque, leader of PwC’s U.S. Capital Markets and Accounting Advisory Services. “We are also continuing to see a broadening of sectors represented in the IPO market, especially growth related offerings in sectors that are well-positioned to capitalize on a recovering economy. These factors, combined with the increase in IPO readiness activity that we are seeing and the increasing number of issuers filing confidentially as emerging growth companies, lead us to remain optimistic about the health of the U.S. IPO market for the remainder of 2013.”
Second quarter IPO activity started off at a moderate pace with 13 IPOs in April raising total proceeds of $3.5 billion. The market heated up significantly in May, which recorded 30 IPOs for a total of $6 billion. Total volume in May represented the most offerings of any month since November 2007 as the robust activity of the IPO market mirrored the strong performance of the broader equity markets. The momentum built in May was tempered in early June with just five IPOs in the first half of the month that raised $1.3 billion in total proceeds. Similar to the pause in the high-yield debt markets, which saw 95 issuances for $43.5 billion in May and just 15 issuances for $4.5 billion through the first half of June, the reduction of IPOs over the first half of June may have resulted from investor uncertainty surrounding the future actions of the Federal Reserve. However, despite increasingly volatile markets in the second half of the quarter (the VIX measure of market volatility closed the quarter up 33 percent, largely as a result of uncertainties around the Federal Reserve’s bond buying program), the second half of June was very active for IPOs, as 14 IPOs raised $2.3 billion, while there were just 16 issuances for $8.4 billion in the high-yield market over the same time period, as the 10-year US Treasury closed out the quarter up 34 percent at 2.49 percent. While IPO activity was strong in the second half of June, the increased level of market volatility put pressure on IPO valuations, with a number of issuer’s pricing below the range. There was only one spin-off IPO in the second quarter of 2013, compared to three spin-off IPOs in the first
quarter of 2013 and no spin-off IPOs in the second quarter of 2012.
Financial sponsors remained active in the IPO market during the second quarter of 2013, representing 71 percent of IPO volume and 76 percent of IPO value. Financial sponsor activity increased by 159 percent from the first quarter of 2013 in terms of IPO volume, while financial sponsor IPO volume increased by 100 percent from last year’s second quarter. Financial sponsors were selling shareholders in 23 percent of the quarter’s financial-sponsor-backed IPOs. Beyond IPOs, financial sponsors continue to evaluate all avenues to exit their investments, including follow-on offerings and M&A.
Second quarter IPO activity started off at a moderate pace with 13 IPOs in April raising total proceeds of $3.5 billion.
“Despite a pullback in the debt markets from recent high levels, financial sponsors continue to benefit from a healthy range of financing alternatives, which have continued to support the M&A market,” said Neil Dhar, PwC’s U.S. Capital Markets Leader. “We expect financial sponsorship in IPOs to continue their leadership in backing new offerings and tapping the debt markets as they seek to take advantage of improving investor sentiment and the options to monetize their investments. We’re seeing financial sponsors and companies in capital raising mode plan for various scenarios and we’ve continued to grow our Deals practice to provide the objective advice and services to support their business objectives.”
The technology and healthcare sectors saw strong increases in the second quarter of 2013, combining to represent 52 percent of IPO activity during the second quarter, with IPO volume in these sectors up 146 percent from the first quarter of 2013. While these sectors are often active in the IPO market, the volume of activity during the second quarter may have been a result of an increased focus by investors
on high-growth companies and those that can benefit from a potential economic recovery. Financial services was the third most active sector in the second quarter of 2013.
According to publicly available filing information, 80 companies entered the IPO registration process in the second quarter of 2013, a 129 percent increase from the 35 companies that entered in the second quarter last year. The publicly available IPO pipeline is led by the financial services (29 percent), technology (14 percent) and healthcare (14 percent) sectors, which represent 57 percent of the total number of companies that have registered publicly with the SEC. The publicly available IPO pipeline includes a total of 140 companies looking to raise $30.5 billion. Due to the confidential filing provision of the JOBS Act, the true IPO pipeline is likely much larger.
In the second quarter, 48 of the 62 IPOs (77 percent) that priced were emerging growth companies (EGCs) as defined under the JOBS Act. The use of the confidential filing provision of the JOBS Act continued to increase in second quarter, as 38 of the 48 (79 percent) EGC IPOs previously filed confidentially with the SEC. PwC expects this trend to increase throughout 2013.
IPO performance has remained strong with average first day returns for the 62 IPOs that priced in the second quarter at 13 percent. Additionally, second quarter IPOs saw strong aftermarket performance, returning an average of 21 percent since IPO date, outperforming the S&P 500, which increased by 2.4 percent during the quarter after a strong run-up in the first quarter, partly driven by significant inflows of funds into equities. The consumer sector, which had 6 IPOs in the quarter, had the highest average one day return of 30 percent. LM
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