PwC’s Q1 IPO Watch Finds IPOs Continue to Dominate the Capital Markets as Activity More than Doubles Compared to Q1 2013

First quarter IPO proceeds top $11 billion

Investor appetite for growth to fuel new issuance going forward

NEW YORK – April 2, 2014 – The robust market for initial public offerings (IPOs) continued in the first quarter of 2014, and momentum is expected to remain strong into the second quarter, according to IPO Watch, a quarterly survey of IPOs listed on U.S. stock exchanges by PwC US.

IPO volume for the first quarter of 2014, as of March 31, reached 71 public company debuts, representing a 109 percent increase over the 34 public listings in the first quarter of 2013. In addition, IPO proceeds raised during the first quarter of 2014 reached $11 billion, a 41 percent increase over the $7.8 billion raised in the first quarter of 2013. The IPO market saw a spike in activity from mid-January through mid-February during which time 37 IPOs (52 percent of IPOs) were completed.

“The improving domestic economy, rising confidence among CEOs and continued record low interest rates all combined to fuel very strong activity in the U.S. capital markets during the first three months of the year,” said Henri Leveque, leader of PwC’s U.S. Capital Markets and Accounting Advisory Services. “Given the strength of today’s equities markets, investors are increasingly focused on pursuing growth stocks across multiple sectors, widening the runway for well-prepared companies with strong growth rationales to pursue IPOs.”

On a sector basis, healthcare, in particular the biotechnology and biopharmaceutical sectors, dominated the IPO market with 35 IPOs, representing close to half of first quarter 2014 IPO volume. Healthcare IPOs, however, only raised a total of $2.2 billion (20 percent of total IPO proceeds) which illustrates that these IPOs typically raise smaller levels of investment due to the often developmental stage of biotechnology and biopharmaceutical IPOs. IPO volume in the consumer sector moderated during the first quarter, after a strong 2013.

The financial sector led the way in terms of total IPO value, accounting for more than $2.7 billion in IPO proceeds during the first quarter. This was mostly due to an outsized offering - Santander Consumer USA Holdings-- that raised $1.8 billion, representing the largest IPO of the first quarter and the only IPO to raise in excess of $1 billion. The energy sector also resonated with investors, raising IPO proceeds of $2.3 billion via six offerings during the first quarter.

The high yield debt market continued to be driven mostly by refinancings, and remained active, although it was slightly down in volume and proceeds when compared to the first quarter 2013.  A total of 146 issuances worth $74.9 billion were completed during the first quarter of this year, compared to 146 issuances worth $68.6 billion in the final quarter of 2013, and 176 issuances worth $90.4 billion in last year’s first quarter.

“In addition to the strong IPO market, we’re continuing to see significant refinancing activity, as management teams seek to sure-up balance sheets and build liquidity ahead of an anticipated increase in interest rates,” said Neil Dhar, PwC’s U.S. Capital Markets Leader. “Both IPOs and high yield debt issuances remained attractive to investors as they continued their search for yield.”

One-day IPO returns continued to show strong performance, with an average 19 percent stock price increase on the first day of trading. Even though this is over a 58 percent increase from the one-day IPO returns experienced during the first quarter of 2013, it is still slightly less than the very strong one-day IPO returns shown during the fourth quarter of 2013.  Aftermarket returns of IPOs also continued to outperform with first quarter 2014 IPOs generating on average 23 percent return over issue price as at quarter end, and again significantly outperformed the S&P 500 and the broader stock markets.

Financial sponsors continued to take advantage of the open IPO window and actively pursued public listings for their portfolio companies, backing 75 percent of the first quarter IPOs, a significant increase over the same time period last year when only 50 percent of the first quarter IPOs were backed by financial sponsors. However, an IPO is often only the first stage of an exit process, and these financial sponsors were selling shareholders in only 14 percent of sponsor backed IPOs, raising $2.7 billion in proceeds from investors. The quarter saw 2 spin-off IPOs that raised $579 million.

The open IPO window and strong equity market helped set the stage for the highest quarterly filings since the second quarter of 2011, with 108 companies publicly filing for an IPO. IPOs are taking less time in the public domain to complete, due in part to the confidential filing provisions of the JOBS Act, and of the 108 first quarter IPO filings, 30 IPOs had already priced by quarter end.

The JOBS Act, designed to spur IPO activity in the U.S., celebrates its second birthday in April 2014 with many of the provisions being adopted by issuers.  Eighty-two percent of filers in the first quarter met the definition of an emerging growth company as defined by the JOBS Act, and over 87 percent of these issuers utilized the confidential filing provisions.

 

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, 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 2013 US IPO Watch and information about PwC's IPO Services.

 

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