IPOs and follow-on offerings increased in value and volume in 2013
Debt markets continue to attract corporate and financial investors
NEW YORK – Feb. 27, 2013 – An improving U.S. economic environment, record low interest rates and strong equity and debt markets drove significant activity in the U.S. capital markets in 2013, according to the inaugural 2013 Capital Markets Watch by PwC US. The new report, released today, builds upon the firm’s quarterly IPO Watch to provide a full year view and comprehensive breakdown of capital markets activity across the equity and debt markets, including initial public offerings (IPO), secondary offerings, spinoffs and convertible, high yield and investment grade debt issuance in 2013.
“The low interest rate environment in 2013 drove a search for higher yields, helping fuel opportunities in the capital markets,” said Henri Leveque, leader of PwC’s U.S. Capital Markets and Accounting Advisory Services. “There were large amounts of investable capital on corporate balance sheets and in the investment community that re-entered the equity and debt markets, pushing the equity markets to record highs, and the second highest high-yield bond issuance in U.S. history. The increased volume and value of capital markets transactions were also driven by financial sponsor activity aiming to generate liquidity on both the sell-side through IPO and secondary markets, and in the high-yield debt markets as they sought to undertake dividend recapitalizations and fund acquisitions.”
PwC expects the U.S. capital markets to continue to show robust growth in 2014, capitalizing on increased momentum in the overall U.S. deals market, greater business investment and improved CEO confidence.
The broader stock indices closed at record highs in 2013, and against this positive market backdrop, all categories of equity capital markets products including IPOs, convertible debt and follow-on offerings saw notable increased activity, with secondary offerings leading the way in terms of capital raised.
Supported by relatively low levels of volatility, the U.S. IPO market was the most robust market since 2007 as investors continued their search for higher yields, completing 238 offerings for $56.9 billion, far surpassing overall volume and value for 2012. Within the IPO market, financial sponsors remained active participants throughout 2013, accounting for 61 percent of the total volume and 63 percent of total proceeds raised. In 2013, financial sponsor backed post-IPO performance results exceeded 2012 levels as financially sponsored companies posted returns of 21 percent on a first day basis compared to nine percent for non-financial backed companies.
“Financial sponsors continued to take advantage of the strong equities market and improving financial conditions of portfolio companies to gain liquidity and monetize their investments in 2013,” said Leveque.
While IPOs boomed, the follow-on market continues to represent a dominant share of equity capital markets offerings, increasing in both value and volume in 2013 with 785 follow-on offerings worth $184 billion. Of the companies that went public between 2011 and 2013, approximately 38 percent went on to do a follow-on offering, with a median time between IPO and follow-on offering of 274 days. PwC’s report notes that financial sponsors accounted for 26 percent of the follow-on offerings in 2013, indicating that corporations see the follow-on market as an effective way to raise capital. However, financial sponsors on average participated in larger follow-on capital raises, recording $67.6 billion in proceeds in 2013.
Similar to the support the strong equity market has provided for new issuers, the favorable debt market has enabled issuers to refinance, and to a lesser extent, generate liquidity and fund mergers and acquisitions.
“The U.S. debt markets continued its strong momentum from 2012 into 2013, as high-yield issuers took advantage of extending and amending existing debt in an environment where investor’s appetite for yield led to a greater tolerance of risk, resulting in the largest year on record for high-yield bonds, after 2012,” said Neil Dhar, PwC’s U.S. Capital Markets Leader.
The high-yield bond market fell just short of record 2012 levels, reaching $323.6 billion from 653 issuances concentrated in the consumer, technology and energy sectors. Issuers of high-yield bonds used the proceeds predominantly for refinancing (50 percent).
In addition, 2013 was another strong year for investment-grade debt issuances as companies continued to take advantage of attractive borrowing rates, according to PwC. The year finished strong with 3,117 issuances worth $1.1 trillion, largely driven by the financial sector which generated 41 percent of the value and 56 percent of the volume in 2013 with $458.3 billion raised.
Spin-off Transactions and Spin-off IPOs
According to PwC, there were 18 spin-off transactions in 2013 – defined as a company that is separated from the parent company as a stand-alone new public company, and its ownership distributed to the existing shareholders of the parent company. The majority of these transactions took place in the consumer and REIT sectors. In addition, 2013 recorded 13 spin-off IPOs – a company that is separated from the parent company and a simultaneous IPO is conducted to raise new capital – a 44 percent increase over 2012. Looking into 2014, the spin-off pipeline appears robust, with 30 companies indicating plans to undertake such a transaction in the near future.
“With global economic growth returning, we see a positive environment for U.S. capital markets,” Dhar continued. “This outlook bodes well for companies as customers return to their historical buying patterns, and as both issuers and investors build confidence to re-enter capital markets. As investors searched for yield in 2013, the capital markets overall will continue to drive the search for yield in 2014.”
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
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