The IPO market's rocky performance in the latter half of 2011 is expected to continue into 2012, according to a recent survey of investment bankers by BDO USA. A year ago, nearly three-quarters of the investment bankers surveyed predicted an increase in U.S. IPOs. That number since has dropped to 50%. What's more, bankers are predicting an average IPO return on investment of just 3%; the return predicted a year ago was 18%.
"The lack of confidence coming through in the survey is consistent with the last half of 2011," says Brian Eccleston, partner in BDO's capital markets practice. In fact, after eking out a 1.2% return for the first six months of 2011, the FTSE Renaissance U.S. IPO Index dropped significantly, posting a negative 23.2% return for the last half of the year, according to Renaissance Capital. Eccleston attributes the shift in performance to increased concerns about the possibility of a recession in Europe, as well as lackluster economic performance this side of the Atlantic.
Indeed, the greatest threats to a healthy U.S. IPO market are global political and financial instability, according to two-thirds of bankers surveyed.
Still, the survey responses weren't all doom and gloom, as Eccleston points out. Respondents predict growth of 6% in the number of IPOs. While that's down from the 11% forecast in 2011, the number still is positive. And, the projected size of the average IPO in 2012 jumped 8% from 2011's forecast, rising from $268 million to $291 million.
Not surprisingly, bankers continue to be most bullish on technology and energy companies, albeit by slightly smaller margins than in 2011. About three-quarters of investment bankers predict a continued increase in offerings in both sectors. That's down somewhat from last year, when 87% forecast an increase in tech offerings, and 83% an increase in energy or natural resources offerings. A majority of respondents also predicted increases in biotech and healthcare offerings. "We suspect that the growth we see will be selective, and probably in more favored industries," Eccelston says.