IPO Activity Surges in Second Quarter, According to PwC's IPO Watch

Month of May Sees Highest Listing Volume Since November 2007

Emerging Growth Companies Under the JOBS Act Represented 77 Percent of IPOs

Range of Sectors Active in IPO Market Broadens as Investors Start to Shift Focus to Growth Companies

Jul 01, 2013, 08:00 ET from PwC US

NEW YORK, July 1, 2013 /PRNewswire/ -- 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 U.S. stock exchanges by PwC US. There were a total of 62 IPOs in the second quarter of 2013, representing an increase of 82 percent compared to 34 listings in the first quarter of 2013, and an increase of 88 percent compared to 33 listings in the second quarter of 2012. 

(Logo: http://photos.prnewswire.com/prnh/20100917/NY66894LOGO)

Total proceeds raised during the second quarter were $13.1 billion, compared to $7.8 billion in the first quarter of 2013, representing a substantial sequential increase of 68 percent. On a year-over-year basis, excluding the Facebook IPO, which raised $16 billion, total proceeds increased by 111 percent. 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 percent. In terms of total proceeds, IPOs in the first half of 2013 raised $20.9 billion, compared to $12 billion for the first half of 2012, excluding Facebook.

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

Click here to view: Q2 comparison: Value and volume of IPOs

"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," said 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 capitalize 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 $3.5 billion. The market heated up significantly in May, which recorded 30 IPOs for a total of $6 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 $1.3 billion in total proceeds. Similar to the pause in the high-yield debt markets, which saw 95 issuances for $43.5 billion in May and just 15 issuances for $4.5 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 percent, 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 $2.3 billion, while there were just 16 issuances for $8.4 billion in the high-yield market over the same time period, as the 10-year US Treasury closed out the quarter up 34 percent at 2.49 percent. 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 percent of IPO volume and 76 percent of IPO value. Financial sponsor activity increased by 159 percent from the first quarter of 2013 in terms of IPO volume, while financial sponsor IPO volume increased by 100 percent from last year's second quarter. Financial sponsors were selling shareholders in 23 percent 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. 

Click here to view: Value and volume of Financial Sponsor-backed U.S. IPOs

"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," said Neil Dhar, PwC's U.S. 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 percent of IPO activity during the second quarter, with IPO volume in these sectors up 146 percent 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. 

Click here to view: Value and volume of US IPOs by industry

According to publicly available filing information, 80 companies entered the IPO registration process in the second quarter of 2013, a 129 percent 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 percent), technology (14 percent) and healthcare (14 percent) sectors, which represent 57 percent 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 $30.5 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 percent) 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 percent) 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 percent. Additionally, second quarter IPOs saw strong aftermarket performance, returning an average of 21 percent since IPO date, outperforming the S&P 500, which increased by 2.4 percent 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 percent. 

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.

PwC's Deals practitioners help corporate and private equity executives navigate transactions to increase value and returns. In today's increasingly daunting economic and regulatory environment, our experienced M&A specialists assist clients on a range of transactions from smaller and mid-sized deals to the most complex transactions, including domestic and cross-border acquisitions, divestitures and spin-offs, capital events such as IPOs and debt offerings, and bankruptcies and other business reorganizations. We help clients with strategic planning around their growth and investment agendas and advise on business-wide risks and value drivers in their transactions for more empowered negotiations, decision-making and execution. We help clients expedite their deals, reduce their risks, capture and deliver value to their stakeholders and quickly return to business as usual. Our local and global deal strength is derived from our deal professionals in 35 cities in the U.S. and across a global network of firms in 75 countries. In addition, our network firm PwC Corporate Finance provides investment banking services within the U.S. For more information, visit www.pwc.com/us/deals.

About PwCUS
PwC US helps organizations and individuals create the value they're looking for. We're a member of the PwC network of firms in 158 countries with more than 180,000 people. We're committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com/US

Learn more about PwC by following us online: @PwC_LLP, YouTube, LinkedIn, Facebook and Google +.

© 2013 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.