The US IPO markets kicked off 2018 with a strong start, with 47 IPOs raising $16.3 billion. That made for the busiest first quarter since 2014, despite significant economic headlines that created volatility in the US equity markets. Q1’18 was also a strong quarter in terms of dollars raised, seeing the most IPO proceeds raised in Q1 in more than seven years. January drove much of the pricing activity; it was the busiest month for IPOs since 2000, with a total of 20 IPOs raising $8.5 billion. While these numbers showed the strength of the US IPO market in the first three months of the year, the broader equity markets had a choppy first quarter, erasing early gains.
The pharma and life sciences sector continued its strong run, with 11 IPOs raising $1.0 billion, equal to Special Purpose Acquisition Companies (SPACs) that also saw 11 IPOs raising $2.0 billion, the highest quarterly number of SPAC IPOs since 2011. SPACs continued to gain in popularity as a financing vehicle in the US, raising increasing interest from institutional investors. The TMT and consumer markets sectors followed with seven IPOs each raising $6.1 and $3.3 billion respectively.
Q1’18 had a strong showing compared to a year ago, as overall IPO volume increased by 81%. In addition to SPACs having a strong quarter, the increase in activity was also led by the pharma & life sciences sector having nearly four times as many deals as compared to Q1’17. The energy, utilities & mining sector also doubled the number of IPOs this quarter vs. a year ago, as the rally in oil prices extended beyond 2017.
The broader US economy continues to demonstrate a strong outlook given recent strong jobs data, continued low unemployment and strong corporate earnings. These factors create favorable conditions for the IPO market, which continues to offer significant alpha to the buy-side. Although the Fed had a hawkish tone with a rate increase in March, it offered investors more visibility around the Fed’s outlook for the economy and its plan for future increases. While volatility as measured by the VIX has waned compared to the levels seen in February, and major US indices have recovered somewhat from the market correction, investors will continue to closely watch future economic data and any new economic policies, such as potential tariffs that might signal faster than expected inflation and prompt the Fed to raise interest rates faster.