U.S. IPO Pipeline Grows to Record Level in Third Quarter as Market Softens

NEW YORK, Oct. 18, 2011 /PRNewswire/ -- The U.S. IPO pipeline is full and primed for companies to go public in Q4 despite continued market swings and volatility according to Ernst & Young's U.S. IPO Pipeline Analysis. The update, reported during the third quarter 2011, showed that Technology and Oil & Gas companies combined accounted for 48 percent of the IPO registration, and when the market regains its footing, these sectors will likely dominate IPO activity. Also, while the technology sector has the most IPOs in the pipeline, registrants in the Oil & Gas sector are expected to raise the most proceeds, with $7.9 billion, or 24 percent, of the total $32.5 billion filing proceeds.

Technology IPOs are typically backed by venture capital and private equity funds, and both PE-backed and VC-backed IPOs in Q3 increased 52 percent and 32 percent from Q2, to 85 percent and 58 percent respectively. PE- and/or VC-sponsored deals made up 63 percent of U.S. new issuance, representing 12 deals and $2.3 billion of capital raised. The second-, third- and fourth-largest U.S. IPOs in Q3'11 were all PE backed.

"It's truly an investors market out there right now, 65 new companies joined the pipeline this quarter alone and the competition for capital is going to be stiff," said Herb Engert, Americas Strategic Growth Market Leader for Ernst & Young LLP. "It has never been so important for companies to be fully prepared to go public, as the IPO window closes just as quickly as it opens."

The report also showed signs of an increase from Q3'10 in the number of cleantech and life science companies in the pipeline. In particular, the biotech sector, with six biotech firms filing new registrations in Q3'11.

"We continue to see cleantech companies enter the IPO pipeline this quarter which shows the continuing maturation of these innovative products, services and business models focused on the transformation to a resource-efficient economy," said Jay Spencer, Americas Cleantech Leader, Ernst & Young LLP.

Overall IPO momentum is slowing in the U.S. with average deal size down 58 percent and capital raised in Q3'11 decreasing by 71.5 percent from Q2'11. Most of the Q3 IPOs went effective in July, with the Oil & Gas, Retail, and Technology sectors accounting for 75 percent of all IPOs. The first nine months of 2011 showed strong performance from those companies going public with average first-day returns at approximately 13.3 percent. Despite the robust first days, performance could not be sustained.

"IPO activity will pick up again. When it does, companies should be prepared to compete with the 181 other companies that are currently registered and in the pipeline, according to our report," said Jackie Kelly, Americas IPO leader for Ernst & Young LLP.  "We want to roll out prepared investments, once the market recovers, to companies that have continued to raise capital during volatile markets, and have addressed potential issues in order to move swiftly when the market is right."

As 65 new companies joined the pipeline, 11 registrants withdrew their offerings and 15 companies announced delays -- the most withdrawals and delays in three years. Companies that withdrew offerings come from all sectors, including: Banking & Capital Markets, Biotechnology, Hospitality & Leisure, Pharmaceuticals, Professional Firms & Services and Technology.

Q3 2010 versus Q3 2011 IPO Pipeline comparison ($ in millions):

Regionally, Texas continues to lead deal volume with 22 companies seeking $6,208 million, followed by California with 38 companies seeking $5,074 million.  

The Ernst & Young U.S. IPO Pipeline analysis is issued quarterly as a forward-looking indicator of the IPO market.  The IPO Pipeline data are refined to eliminate bias from financial services organizations, real estate investment trusts (REITs) and other holding companies that represent assets under management instead of core businesses.  It also eliminates any registrations sitting on the books for more than 12 months – long-term applicants that may bloat numbers, but don't reflect current market trends.

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SOURCE Ernst & Young