The US initial public offering (IPO) market continued to demonstrate significant investor interest in IPOs in the third quarter of 2014.
While the volume of IPOs slightly declined, proceeds reached USD38.1 billion, and the pace of companies entering the IPO registration process continued to exceed prior year levels, according to IPO Watch, a quarterly survey by PwC US of IPOs listed on US stock exchanges.
Interest in new equity issues remains healthy heading into the fourth quarter, although investors have become more cautious as they evaluate various global macroeconomic and geopolitical issues.
According to PwC, there were 68 public company debuts in the third quarter of 2014, representing USD38.1 billion in proceeds. Third quarter volume remained relatively consistent with the 64 public listings in the third quarter of 2013, while total IPO value increased 221 per cent over the USD11.8 billion in total proceeds recorded in the same period. For the first nine months of the year, there were a total of 228 IPOs, generating USD70.5 billion in proceeds, compared to 161 IPOs, which raised USD32.8 billion during the same period of the previous year. The substantial gain in total proceeds raised during the third quarter and first nine months of 2014 reflects the inclusion of the Alibaba Group Holding IPO, which raised USD21.8 billion on 19 September, not including the overallotment exercise – with overallotment the IPO raised USD25 billion, the largest IPO on record.
“We continued to see healthy capital markets activity during the third quarter, with ample funding alternatives available from IPOs to debt financings,” says Henri Leveque, leader of PwC’s US capital markets and accounting advisory services. “While investors continue to pursue high growth opportunities, particularly in the technology and healthcare sectors, they are returning to a more selective approach to new offerings. Ongoing global geopolitical concerns and continued uncertainty regarding the direction of the worldwide economy have all fuelled a more cautious stance in the equity markets. Still, the IPO market remains very active as companies seek to tap into investor appetite while the window is open.”
In line with previous quarters, healthcare continued to dominate the market in terms of total IPO volume, accounting for 46 per cent of total IPO volume for the quarter. However, healthcare IPOs only raised a total of USD2.8 billion, or seven per cent of total IPO proceeds, illustrating that these IPOs typically raise smaller levels of investment. On a total proceeds basis, the top industry was technology with USD23.5 billion in proceeds, including the Alibaba IPO, followed by financial services with USD7.8 billion. Overall, IPO investors remain interested in high-growth companies as reflected in the strong demand for biotech and technology IPOs.
The average first day gain of the 68 IPOs that priced during the third quarter was 11.4 per cent, a decrease from the 20 per cent first day gain for the IPOs that priced in the third quarter of 2013. However, the performance was up from the 9.2 per cent first day gain of IPOs that priced during the second quarter of 2014. In addition, third quarter IPOs saw strong aftermarket performance, returning 18.6 per cent between the IPO and close of the quarter, easily outperforming the S&P 500.
Financial sponsors maintained their presence in the public markets during the third quarter of 2014, backing 54 per cent of IPO volume and 69 per cent of value, compared to 63 per cent of IPO volume and 51 per cent of value in the third quarter of 2013.
Q3 saw a marked decrease in high yield issuance of 52 per cent to USD68.9 billion, driven by a significant reduction in refinancing, while the number of high yield issuances driven by M&A increased 26% over Q2. The YTD total of USD250 billion falls slightly short of the 2013 YTD total of USD263 billion, and increasing softness in the secondary markets are creating headwinds.
“With the gradual reduction in the Federal Reserve’s stimulus programme, and the prospect of increased interest rates on the horizon, we’re continuing to see significant refinancing activity, as management teams seek to secure funding on attractive terms,” says Mike Gould, PwC’s US public offerings leader. “At the same time, IPOs and high yield debt securities remain attractive to investors as they seek to lock in yield.”
