Judging by the initial public offerings (IPO) that already have come to the market this year, along with investment bankers' predictions for the remainder of the year, the economy is indeed looking up. “If the investment bankers' predictions play out, it will be a good year,” says Wendy Hambleton, partner in the capital markets area with accounting firm BDO. BDO recently surveyed 100 capital markets executives to get their thoughts on the market for IPOs during the second half of 2011.
More than half of the investment bankers surveyed predicted continued growth in the number and size of IPOs during the second half of 2011. Nearly 60 percent of respondents forecast an increase in the number of IPOs with 18 percent predicting a substantial jump. Only 13 percent anticipate a drop, and 28 percent said the market would remain unchanged.
If history is any guide, the number of IPOs indeed will jump. In seven of the last eight years, the number of IPOs increased in the last six months of the year, BDO reports.
What's more, IPO activity overall already has gone up this year, statistics from Renaissance Capital show. To date, 77 IPOs have been priced, compared with 63 for this period last year.
Perhaps not surprisingly, the sector seeing the most activity is technology. So far this year, 29 tech companies have gone public. The energy sector was next with 12 deals.
The BDO survey reflects this activity. Three quarters of respondents predicted even more tech company IPOs during the rest of 2011, while 69 percent said the energy/natural resources sector would see an increase.
Along with the numbers of deals, deal sizes also are on the upswing. The companies that have gone public this year have raised more than $25 billion, nearly three times the $9.2 billion raised in 2010, according to Renaissance Capital.
Several factors are behind the increase in activity, investment bankers said. The number of offerings from PE-backed businesses was a driver, according to 43 percent of respondents, while one-third said the larger sizes of the companies coming to market is contributing to the jump. In addition, the companies filing for public offerings boast stable financials, according to 24 percent of respondents.
Several macroeconomic trends also are driving deal growth, according to the investment bankers. Nearly half — 47 percent — cited general market stability, while 29 percent credited increasing investor demand for higher-yielding assets.
The fact that a number of entities coming to market are backed by venture capital or private equity firms that need to deliver returns to clients also is driving IPO growth, according to about one-fifth of investment bankers surveyed. “There's a little pent up demand,” and PE and VC firms are taking advantage of the market's current openness, Hambleton says. “There were companies that looked at going public earlier but either the market moved or the timing wasn't right.”
This isn't to suggest that no obstacles to a recovering market exist. Nearly one-third of investment bankers, or 31 percent, cited government moves as a potential stumbling block. “Investment bankers want stability,” Hambleton said. Constrained bank lending and global political instability were seen as potential threats by 22 and 19 percent of respondents, respectively.
Even so, the consensus points to steady growth in the market. “No one thinks it's going down,” Hambleton says. “They're optimistic based on what's in their pipeline.”