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Are US IPOs at an Inflection Point?

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September 11, 2015

 

The initial public offerings in the US have been reaching great levels in recent years. But newly published research suggests, the market might be about to turn. This could mean private equity firms won’t have as many lucrative exit opportunities during the second half of the year and the start of next year.

 

Renaissance Capital’s Research

 

According to Renaissance Capital, the IPO market in the US is reaching an inflection point. The country’s stock has witnessed 131 IPOs this year, raising nearly $22 billion in total. While the number is similar to the amount issued during the same period in 2013, it is nearly a third less than the levels during the same period last year. Furthermore, proceeds have also declined. The current $22 billion raised is nearly 45% lower than last year’s proceeds at this point.

 

If the US manages to pass 200 IPOs this year, it would be the third consecutive year of doing so. This would be quite an achievement, since it hasn’t happened since the late 1990s.

 

From the IPOs, the healthcare sector companies have been dominating. Nearly 60% of all listings have been by healthcare companies, a sector favoured by private equity firms. Interestingly, over half of the companies, which have submitted IPO paperwork, are backed by private equity.

 

This is a significant increase, as last year’s comparable figure was just 36%. According to the research firm, this is down to private equity firms’ caution over an expected interest rate rise. Firms are trying to pay down debt levels before the interest rates rise.

 

Increasing Volatility

 

But the researchers at Renaissance Capital believe the increasing volatility in the stock market is going to slow down offerings in the latter part of the year. The VIC volatility Index has already reached its highest levels since September 2011.

 

Many companies, which have listed this year, have lost value after the initial offering. While IPOs have fared well initially, the value has dropped often significantly after a short period.

 

This volatility could eat off companies’ interest to go for listings. On the other hand, it could boost the number of traditional leveraged buyouts in the region, as firms are looking to shed off ‘dry powder’.

 

Big IPOs on the Pipelines

 

The next few months are expected to see some big IPOs in the US. Companies, including the likes of First Data and Univision, are going to offer opportunities for their private equity owners. Overall, there are around 122 companies waiting for listing, with 62 of these companies being ‘active pipeline’. According to their paperwork, they could raise $32 billion.

 

Univision is expected to raise around $1 billion, while First Data is dubbed by many to become the biggest US IPO of the year. But the research company warns, these big deals might not be as common in the future. Matt Kennedy, analyst at Renaissance Capital, told Fortune, “If the public market appears to be closing, then you might see private funding dry up a little bit too”.

 

It’ll be interesting to see how the situation develops and what impact do the big deals in the pipelines have for other companies considering a listing.

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