IPO Growth Expected to Accelerate in 2011

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Both the size and number of initial public offerings (IPOs) in the U.S. is likely to grow in 2011, according to a recent survey of investment banking executives by BDO USA, LLP. Nearly three-fourths of the execs predict growth, with 24 percent saying it will be substantial.

About 150 IPOs were completed in 2010, or nearly double the 63 that took place in 2009, says Brian Eccleston, a partner in BDO's capital markets practice. For next year, the number is expected to grow modestly, to about 170 to 175.

More significantly, deal sizes are expected to show solid increases. The average deal in 2010 was about $250 million; if you back out GM's history-making $20 billion IPO, that drops to $150 million. For 2011, the average deal is expected to be in the range of $270 million, or nearly double the 2010 ex-GM average, Eccleston notes. That equates to a total IPO market of $45 billion.

What's driving the growth? “There seems to be an expectation that private equity holdings that had been held back” now are coming into the market, now that it's loosened up, Eccleston notes. In addition, many private equity and venture capital firms are looking for some returns to provide their investors, so that they can raise new money. Nearly half – 47 percent – of investment bankers say that private equity portfolios will be the greatest source of IPOs in 2011.

The industries likely to lead the way are – no surprise – technology, energy and natural resources, and biotech.

While corporate CFOs can view the forecast as one sign of an increase in the opportunities available to do deals, investors will be focused on firms with long-term growth potential, stable cash flows, and profitability. “You still need the right company, the right time, and a good story,” Eccleston notes. ###

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Karen Kroll supplies the Business Finance community with reporting and commentary examining cash management and treasury-related topics.

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