Political and financial instability could still threaten the surge in interest in IPOs.
While the pace of initial public offerings (IPOs) on U.S. exchanges saw a slower start this year than in 2011 and 2012, that has changed, data from Renaissance Capital shows. Through April 2013, 44 IPOs had been priced, compared to 58 in 2012 and 49 in 2011. In May, however, 30 deals were priced, far outpacing the numbers from 2011 and 2012, which totaled 20 and 11, respectively.
“In April, things really hadn’t taken off,” says Lee Graul, a partner in the capital markets practice with BDO USA. “Then in May, we were seeing results that were knocking the doors off.”
The abrupt turnaround even impacted The BDO IPO Halftime Report, a survey of 100 investment banking executives, Graul says. When the firm began work on the survey in April, surveyors were prepared to ask bankers their thoughts on reasons for the down market. “Then we got into May and the market took off,” he says. The questions were adjusted to reflect the change.
Moreover, investment bankers sound optimistic that the change will continue. Nearly two-thirds expect IPO activity to increase further in the second half of the year, while just six percent are forecasting a drop. The level of increase expected? 7.7 percent. The deals will average $265 million, for total IPO proceeds of $41 billion this year on U.S. exchanges. (Through May, total IPO proceeds trail the numbers achieved last year. However, when Facebook’s $15 billion IPO is subtracted from the 2012 numbers, the picture changes: 2013’s proceeds of about $17 billion top last year’s $12.8 billion, also according to data from Renaissance Capital.)
Not surprisingly, technology, energy/natural resources and healthcare are expected to lead the pack. For instance, three-quarters of investment bankers expect the number of tech IPOs to grow, compared to three percent predicting a decline. The bankers are least optimistic when it comes to consumer/retail IPOs. Just 28 percent predict an increase in these public offerings, while 20 percent say their numbers will decline.
One key driver behind the current activity in the IPO market is the previously postponed offerings that now are moving forward with an improving economy. “As the Dow Jones moves up, more companies jump in to take advantage,” Graul says. Indeed, the Dow Jones has risen nearly 13 percent this year to top 15,000 by May. In addition, low interest rates are prompting investors to look to other assets for higher yields.
While the outlook overall is optimistic, the bankers did identify several concerns. Political and financial instability around the globe tops the list, with nearly two-thirds of investment execs identifying this as a threat to the IPO markets. “The market is clearly being paranoid about what’s going on in the broader economy,” Graul says. Coming in a distant second was constrained bank lending; 18 percent of those surveyed mentioned this.