IPO Market Momentum Breaks Full Year 2012 Totals, According to PwC's Q3 IPO Watch

Late September Sees Surge in IPO and High Yield Market Activity

Breadth of IPO Activity Continues as Investors Pursue Growth Companies

Oct 02, 2013, 08:00 ET from PwC US

NEW YORK, Oct. 2, 2013 /PRNewswire/ -- The capital markets continued to demonstrate strong momentum in the third quarter of 2013 as the volume of new public listings matched the previous quarter, and exceeded the third quarter of 2012, according to IPO Watch, a quarterly survey of IPOs listed on U.S. stock exchanges by PwC US.  Overall IPO volume for the first nine months of 2013 has already surpassed overall volume for all of 2012, while the high yield market saw $255 billion of issuances, exceeding 2012 issuances through three quarters.

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There were a total of 63 IPOs in the third quarter of 2013, consistent with the second quarter of 2013, and an increase of 110 percent compared to 30 listings in the third quarter of 2012.  The first nine months of 2013 recorded 160 IPOs, surpassing the 108 IPOs in the comparable period last year, and the 146 IPOs for all of 2012.

Total IPO proceeds raised during the third quarter were $11.8 billion, compared to $13.2 billion in the second quarter of 2013 and $6.7 billion in the third quarter of 2012, an increase of 76 percent year over year. For the first nine months of 2013, total proceeds raised were $32.8 billion, exceeding $26.9 billion raised for all of 2012, excluding Facebook. The high yield debt market also outperformed, with $83.1 billion of issuances in the third quarter of 2013, compared to $82.5 billion in the previous quarter.

Click here to view: Value and volume of IPOs by quarter

Click here to view: Q3 comparison - Value and volume of IPOs

"The IPO market remained active in the third quarter, in line with investors continuing their focus on high growth companies," said Henri Leveque, leader of PwC's U.S. Capital Markets and Accounting Advisory Services.  "The field of IPOs broadened, with particularly strong demand in biotech and enterprise software, while the volume of financial services IPOs declined.  A continuation of historically low volatility for much of the quarter and strong overall equity market performance, including the S&P 500 and Dow Jones hitting record highs in September, supported investor demand for IPOs during the quarter.  The IPO pipeline is growing with several highly anticipated name-brand IPOs, which will likely encourage other quality companies to file and price. That momentum will carry through the fourth quarter and we expect the year to finish as the busiest since 2007."

IPO activity during the early part of the third quarter of 2013 started off slowly but advanced significantly in the second half of July through August, with 42 IPOs raising $8.3 billion, and picked up again in late September.  According to PwC, the strong activity of the IPO market over the final weeks of the quarter benefited from the strong performance of the broader equity markets and inflows into global equity funds leading up to the Federal Reserve's decision to delay tapering its quantitative easing program, despite an increase in market volatility due to concerns over the potential government shutdown and its implications on the debt ceiling debate.

"The IPO market had a strong run in the third quarter and despite several pauses, well-prepared companies were able to hit the IPO window when it was open," said Neil Dhar, PwC's U.S. Capital Markets Leader.  "Similar to the acceleration seen in the IPO market in September, the high yield debt market picked up as well, punctuated by several large offerings as issuers looked to take advantage of the opportunity to raise money in anticipation of continued rising interest rates.  We're seeing a very active market for both M&A and capital raising, as financial sponsors evaluate all of their options in monetizing their portfolios, while securing growth opportunities for the future."

Financial sponsors remained active in the IPO market during the third quarter of 2013, representing 62 percent of IPO volume and 51 percent of IPO value, though only 18 percent of financial sponsors were selling shareholders in IPOs.

Click here to view: Value and volume of financial – sponsor – backed U.S. IPOs

IPO activity in the healthcare and technology sectors continued in the third quarter as investors looked to offerings from sectors that performed well in the first half of 2013.  The healthcare sector witnessed 18 IPOs in the third quarter of 2013, raising $3 billion, while the technology sector saw 14 IPOs raising total proceeds of $1.3 billion.  Conversely, IPOs from the financial services sector accounted for just 14 percent of third quarter IPO volume, down from 22 percent in the previous quarter.  "The recent increase in interest rates has bolstered investor's interest in high-growth companies, and demand for IPOs in certain sectors reflected the change in investor sentiment," added Dhar.

The third quarter of 2013 saw four spin-off IPOs, compared to one spin-off IPO in both the second quarter of 2013 and the third quarter of 2012. Through three quarters of 2013 there have been eight spin-off IPOs, compared to just one for the same period in 2012.

Click here to view: Value and volume of U.S. IPOs by industry

According to publicly available filing information, 81 companies entered the IPO registration process in the third quarter, a slight increase from the second quarter, and a sharp increase of 108 percent from the 39 companies that entered in the third quarter of 2012.  The publicly available U.S. IPO pipeline is led by the Financial Services, Technology and Healthcare sectors, which represent 61 percent of the companies in the U.S. IPO pipeline. The publicly available IPO pipeline includes 147 companies looking to raise $27.3 billion. It should be noted that due to the confidential filing provision of the JOBS Act, the true IPO pipeline is likely much larger.

Of the 63 IPOs that priced during the third quarter, 58, or 92 percent, were emerging growth companies (EGCs) as defined under the JOBS Act. The confidential filing provision of the JOBS Act continued to be well received in the third quarter, as 50 of the 58 (86 percent) EGC IPOs previously filed confidentially with the SEC.

The average first day return for the 63 IPOs that priced during the third quarter was 20 percent, compared to 13 percent for IPOs that priced in the third quarter of 2012. Additionally, the third quarter saw strong aftermarket performance, returning an average of 27 percent since IPO date, outperforming the S&P 500, which increased by 4.7 percent during the quarter and hit a record high in September, but retreated late in the quarter on concerns over the looming government shutdown.  The technology sector, which had 14 IPOs in the quarter, had the highest average one day return of 35 percent. On a year-to-date basis, IPOs as an asset class have returned 34 percent, outperforming the S&P 500 and NASDAQ, which returned 17.9 percent and 24.9 percent, respectively.

PwC US IPO Watch is a quarterly and annual survey of IPOs listed on U.S. stock exchanges.  These include IPOs by domestic and foreign companies, best-efforts, business development companies, filings with the FDIC, and bank demutualization's.  IPOs do not include unit investment trusts, commodity trusts and fully classified closed-end funds.  Visit our website, www.pwc.com/us/ipo, for the annual 2012 US IPO Watch and information about PwC's IPO Services.

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