IPO activity surged in the second quarter of 2013, as the volume of new public listings far exceeded the previous quarter, as well as the second quarter of 2012, according to IPO Watch, a quarterly survey of IPOs listed on US stock exchanges by PwC US.
There were a total of 62 IPOs in the second quarter of 2013, representing an increase of 82 per cent compared to 34 listings in the first quarter of 2013, and an increase of 88 per cent compared to 33 listings in the second quarter of 2012.
Total proceeds raised during the second quarter were USD13.1 billion, compared to USD7.8 billion in the first quarter of 2013, representing a substantial sequential increase of 68 per cent. On a year-over-year basis, excluding the Facebook IPO, which raised USD16 billion, total proceeds increased by 111 per cent. Through the first two quarters of 2013, the IPO market has outpaced 2012, with 96 IPOs compared to 78 for the first half of last year, an increase of 23 per cent. In terms of total proceeds, IPOs in the first half of 2013 raised USD20.9 billion, compared to USD12 billion for the first half of 2012, excluding Facebook.
IPO activity rose substantially during the second quarter, bolstered by early gains in a strong, albeit volatile, equity market, and an increased appetite for risk among investors,” says Henri Leveque, leader of PwC’s U.S. Capital Markets and Accounting Advisory Services. “We are also continuing to see a broadening of sectors represented in the IPO market, especially growth related offerings in sectors that are well-positioned to capitalise on a recovering economy. These factors, combined with the increase in IPO readiness activity that we are seeing and the increasing number of issuers filing confidentially as emerging growth companies, lead us to remain optimistic about the health of the U.S. IPO market for the remainder of 2013.”
Second quarter IPO activity started off at a moderate pace with 13 IPOs in April raising total proceeds of USD3.5 billion. The market heated up significantly in May, which recorded 30 IPOs for a total of USD6 billion. Total volume in May represented the most offerings of any month since November 2007 as the robust activity of the IPO market mirrored the strong performance of the broader equity markets. The momentum built in May was tempered in early June with just five IPOs in the first half of the month that raised USD1.3 billion in total proceeds. Similar to the pause in the high-yield debt markets, which saw 95 issuances for USD43.5 billion in May and just 15 issuances for USD4.5 billion through the first half of June, the reduction of IPOs over the first half of June may have resulted from investor uncertainty surrounding the future actions of the Federal Reserve.
However, despite increasingly volatile markets in the second half of the quarter (the VIX measure of market volatility closed the quarter up 33 per cent, largely as a result of uncertainties around the Federal Reserve’s bond buying program), the second half of June was very active for IPOs, as 14 IPOs raised USD2.3 billion, while there were just 16 issuances for USD8.4 billion in the high-yield market over the same time period, as the 10-year US Treasury closed out the quarter up 34 per cent at 2.49 per cent. While IPO activity was strong in the second half of June, the increased level of market volatility put pressure on IPO valuations, with a number of issuer’s pricing below the range. There was only one spin-off IPO in the second quarter of 2013, compared to three spin-off IPOs in the first quarter of 2013 and no spin-off IPOs in the second quarter of 2012.
Financial sponsors remained active in the IPO market during the second quarter of 2013, representing 71 per cent of IPO volume and 76 per cent of IPO value. Financial sponsor activity increased by 159 per cent from the first quarter of 2013 in terms of IPO volume, while financial sponsor IPO volume increased by 100 per cent from last year’s second quarter. Financial sponsors were selling shareholders in 23 per cent of the quarter’s financial-sponsor-backed IPOs. Beyond IPOs, financial sponsors continue to evaluate all avenues to exit their investments, including follow-on offerings and M&A.
“Despite a pullback in the debt markets from recent high levels, financial sponsors continue to benefit from a healthy range of financing alternatives, which have continued to support the M&A market,” says Neil Dhar, PwC’s US Capital Markets Leader. “We expect financial sponsorship in IPOs to continue their leadership in backing new offerings and tapping the debt markets as they seek to take advantage of improving investor sentiment and the options to monetize their investments. We’re seeing financial sponsors and companies in capital raising mode plan for various scenarios and we’ve continued to grow our Deals practice to provide the objective advice and services to support their business objectives.”
The technology and healthcare sectors saw strong increases in the second quarter of 2013, combining to represent 52 per cent of IPO activity during the second quarter, with IPO volume in these sectors up 146 per cent from the first quarter of 2013. While these sectors are often active in the IPO market, the volume of activity during the second quarter may have been a result of an increased focus by investors on high-growth companies and those that can benefit from a potential economic recovery. Financial services was the third most active sector in the second quarter of 2013.
According to publicly available filing information, 80 companies entered the IPO registration process in the second quarter of 2013, a 129 per cent increase from the 35 companies that entered in the second quarter last year. The publicly available IPO pipeline is led by the financial services (29 per cent), technology (14 per cent) and healthcare (14 per cent) sectors, which represent 57 per cent of the total number of companies that have registered publicly with the SEC. The publicly available IPO pipeline includes a total of 140 companies looking to raise USD30.5 billion. Due to the confidential filing provision of the JOBS Act, the true IPO pipeline is likely much larger.
In the second quarter, 48 of the 62 IPOs (77 per cent) that priced were emerging growth companies (EGCs) as defined under the JOBS Act. The use of the confidential filing provision of the JOBS Act continued to increase in second quarter, as 38 of the 48 (79 per cent) EGC IPOs previously filed confidentially with the SEC. PwC expects this trend to increase throughout 2013.
IPO performance has remained strong with average first day returns for the 62 IPOs that priced in the second quarter at 13 per cent. Additionally, second quarter IPOs saw strong aftermarket performance, returning an average of 21 per cent since IPO date, outperforming the S&P 500, which increased by 2.4 per cent during the quarter after a strong run-up in the first quarter, partly driven by significant inflows of funds into equities. The consumer sector, which had 6 IPOs in the quarter, had the highest average one day return of 30 per cent.
