Q1 2019 Capital Markets Watch

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US IPO activity weakened as issuers try to time the market window

US IPO markets in the first quarter of 2019 priced 30 IPOs, raising $7.6 billion, slightly below the Q1 average for the past five years of 35 IPOs raising $9 billion. This decline was primarily due to the Government shutdown lasting 3 weeks into January, coupled with broader investor uncertainty driven by policy debates around trade, Brexit and the appearance of slowing leading economic indicators, which could reduce GDP growth going forward. 

Upcoming high-profile IPOs with strong growth are scheduled to hit the road in the second quarter, along with a number of other IPOs in the pipeline. Investor demand for these IPOs is somewhat disconnected to a possible slowdown in macro growth, following the best quarter the S&P had since Q3’09.


SPACs dethrone Pharma as leading sector

SPACs were the most active sector, and accounted for half of all first quarter IPOs, with 15 SPACs raising $3billion. This marks the highest quarterly volume of SPACs in the last 12 years. This quarter Pharma and Life Sciences came a solid second place with nine IPOs with a total volume of $1 billion, the first quarter since Q1’17 that Pharma and Life Sciences have not lead by volume.


Capital markets performance trends

IPO returns outpace the S&P once again

Average IPO returns in Q1’19 were 19% as investor demand remained high for IPOs, which continue to outpace the S&P 500 returns at 13%. The Financial Services sector led IPO performance returning 43%, followed by the Consumer Markets sector returning an average of 39%.

Follow-ons show first signs of decline

US equity markets priced 163 follow-ons raising $30.5 billion in the first quarter, a slight decrease over the first quarter last year.

The Pharma and Life Sciences sector led in volume with 73 follow-ons, followed by Financial Services with 36 and Technology, Media, and Telecom with 31. This makes for a consecutive 12 quarters that Pharma and Life Sciences has led by volume. The Financial Services sector led in amount, raising $11 billion, followed by Technology, Media, and Telecom raising $9.3 billion and Pharma and Life Sciences raising $7.1 billion. Follow-ons were priced at an average discount of 10% to the last trading price.

High-yield shows potential signs of a turnaround

The US high-yield market continued its recent decline, with 80 companies issuing $60.5 billion. This issuance represents a 27% reduction in the number of issuances compared to the first quarter of 2018. However, some optimism has returned in the first quarter, as the Fed maintained rates, corporate earnings again beat expectations and spreads tightened - 91% of issuers had ratings between B and BB+ and most proceeds were used for refinancings as usual. The average yield was 6.96% across all sectors against an average 10-year Treasury yield of 2.65% this quarter, which temporarily inverted compared to the 90-day Treasury yield for five days.

Technology, Media and Telecom led the field with 19 deals raising $17.4 billion. Industrial Products followed with 18 issuances raising $14.5 billion. Consumer Markets followed third by volume with 14 issuances.

What to watch

Recently the market has been impacted by yield curve concerns, but the Fed’s most serious concern is that inflation continues to undershoot its target. The Fed kept rates on hold in March and is now expecting no more rate hikes for the year. European growth is weaker, a trade deal with China might not involve tariff reductions, Brexit has been delayed, and some major emerging markets are struggling. However, it is expected that most of those risks will go away by the second half of the year.

The window to tap public markets with IPOs continues to remain open. In 2019, expect the Pharma Life Sciences sector to lead the broader IPO market and the Technology Media and Telecom sector to continue to deliver large new entrants. Despite the current environment of investor uncertainty due to fears of a weakening economy, next quarter could see a large uptick in IPOs. As a result of the government shutdown, IPO activity was hampered this quarter causing a back up in IPOs waiting to price.

Please note: IPOs with deal values that are less than $25mm, best efforts offerings, oil and gas royalty trusts, business development companies, pricing on OTC Bulletin Board and OTC Pink Sheets are excluded.


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David Ethridge

IPO Services Leader, PwC Deals, PwC US

Tel: +1 (973) 615 1091

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Daniel  Klausner

Daniel Klausner

Managing Director, CMA Leader, PwC Deals, PwC US

Tel: +1 (646) 573 6756

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Derek Thomson

Derek Thomson

Capital Markets Research Leader, PwC Deals, PwC US

Tel: +1 (646) 416 0386

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