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IPO market surpasses USD21bn in Q2 proceeds, says PwC

The market for initial public offerings (IPOs) finished on a strong note late in the second quarter of 2014, recording the highest quarterly deal volume since the fourth quarter of 2007.

Interest in new equity issues is expected to remain healthy heading into the third quarter, driven by continued investor demand for growth and a strong equities market environment, according to IPO Watch, a PwC US quarterly survey of IPOs listed on US stock exchanges.
 
According to PwC, there were 89 public company debuts in the second quarter of 2014, representing USD21.5 billion in proceeds raised. On an annual basis, this represents an increase of 41 per cent over the 63 public listings in the second quarter of 2013, and a 63 per cent increase over the USD13.2 billion raised.
 
For the first half of the year, there were a total of 160 IPOs, generating USD32.4 billion in proceeds compared to 97 IPOs totalling USD21 billion in the same period the previous year. 
 
The IPO market saw a spike in activity beginning in mid-June, with 25 IPOs (28 per cent of IPOs) pricing during the final three weeks of the second quarter. 
 
“Domestic capital markets activity remained very healthy during the second quarter with deal flow rebounding following a brief pullback in the spring,” says Henri Leveque, leader of PwC’s US capital markets and accounting advisory services. “Investors continue to search for growth opportunities given record low interest rates both in the US and Europe, and a low growth economic environment. If the current strength of the equity markets continues and the global economic recovery stays on pace, the total number of 2014 IPOs and proceeds raised may surpass 2013 levels of 238 new issuers and USD57 billion.”
 
Healthcare and technology companies continued their high activity levels of the first quarter to lead the way in volume, and technology, consumer and energy companies raised the most proceeds.   A large number of early-stage healthcare companies have also resurfaced in the IPO market, highlighting the importance of being well-prepared to take advantage of rapid changes in the IPO window.
  
With an average 9.2 per cent stock price increase on the first day of trading, one-day IPO returns continued to perform well.  In addition, aftermarket returns of IPOs in the second quarter of 2014 generated on average 20.3 per cent return over issue price as at quarter end, significantly outperforming all the broader stock markets despite both the Dow and the S&P500 reaching record highs. Demand for IPO stock that came to market remained strong, with 62 per cent of IPOs pricing either above or within their estimated pricing ranges.
 
Financial sponsors maintained their strong presence in the public markets, backing 76 per cent of the second quarter IPO value, slightly outpacing the same time period last year when financial sponsors represented 70 per cent of IPO value.  The ongoing pattern of sponsors not necessarily selling down their positions in the IPO, but rather staggering their sell-down over subsequent follow-on equity offerings and subsequent transactions continued in the second quarter.
  
The high yield debt market continued to be driven primarily by refinancings, and remained active, handily exceeding proceeds raised in the second quarter 2013.  A total of 178 issuances raising USD105.1 billion were completed during the second quarter of this year, compared to 176 issuances raising USD89.5 billion in the second quarter of 2013.
 
“Companies are continuing to take advantage of low interest rates to refinance their existing debt and take on additional leverage with more flexible terms,” says Neil Dhar, PwC’s US capital markets leader. “Management teams remain focused on finding the best outcome for their funding and liquidity goals and are thinking through a number of critical factors as they navigate the capital markets. We’re seeing a deeper focus from participants on deal structures, rates, valuations, and fee arrangements. With capital market windows opening and closing at faster rates than ever before, independent evaluations of debt and equity issuers can deliver more successful deals.”

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