2018 Annual US Capital Markets Watch

Key takeaways:

US indices

All major US indices reached record highs but retreated during the fourth quarter to erase any gains made during the year.

US IPO volume and value

2018 IPO volume exceeded 200 mark for third time in 10 years. 214 IPOs raised $54 billion, signaling continued strong interest from the investment community in IPOs as a risk-adjusted source of alpha.


Non-US companies comprised one quarter of total US IPO volume for 2018, with China-based companies leading the way.

After reaching record highs in February, US equity markets closed 5% down in a highly volatile environment

In 2018, the US equity markets had their worst performance since 2008. The US economy started the year building on 2017’s strength, with solid GDP growth, low unemployment and record consumer confidence. At the corporate level, S&P earnings also showed robust growth and equity returns continued to outperform. The S&P reached a record high in September, before falling below end of 2017 levels. Corporate tax cuts, increasing interest rates, midterm elections and increasing trade issues with China all played a unique role in creating an extremely volatile last quarter for US markets.

US IPOs kept investors closer to the green, compared to a negative return from the broader indices

A retreat in the major US indices during Q4 erased most of the gains made in H1, following renewed talks with key trade partners, uncertainty around Brexit and concerns on global economic growth—all of which potentially contributed to the surge in market volatility. Despite a 1% loss, investors in IPO markets in 2018 again outperformed the choppy, broader US markets, which returned 4% for the NASDAQ, 6% for the S&P 500 and 12% for the Russell 2000.

Less than 15% of IPOs had selling shareholders in 2018, a 23% decrease from last year.

Pharma and life sciences led the way with 67 IPOs in 2018, showing potential for continued volume in 2019

Pharma and life sciences dominated volume of deals in 2018 with 67 IPOs, representing over 30% of the annual total. “Given the unique nature of these IPOs involving crossover investors, their strong returns, the rapid advances in science due to “Big Data” innovations and the expectation of big Pharma scooping up promising young companies, we expect the Pharma Life Sciences sector to keep leading the broader IPO market in 2019,” said David Ethridge, U.S. IPO Services Leader at PwC.

Technology, Media and Telecom (TMT) has continued to boom and attract investor interest, leading in deal value for the eighth consecutive year. In 2018, it had 49 IPOs raising $19 billion, which comprised 35% of total deal value for the year.

SPACs have had their best year in terms of deal value and their highest volume since 2007, with 46 IPOs raising $10 billion. SPAC’s increase in popularity can be partially attributed to changes in structure, increase in sponsors and dedicated management teams.

Mega IPOs (>$1bn in proceeds) drove average deal value to highest since 2014

Mega IPOs had a strong showing through 2018, with issuances from nine companies compared to three in 2017. This was led by the TMT sector, which had its highest issuance in volume since 2014 and had five of the nine Mega IPOs. These Mega IPOs account for over one quarter of the total year IPO deal value, driving the average deal value up from 2017 to $254 million. This is the highest value since Alibaba went public in 2014, which made the average $315.

Follow-on issuance declined in the final quarter of the year

While the number of follow-ons stayed fairly consistent through the first three quarters of 2018 (185, 190 and 181, respectively), there was a significant decline in activity in Q4, with 129 follow-on offerings raising over $22 billion. This decrease in activity aligns with the sharp downturn of the equity markets, specifically the S&P 500, which declined ~14% in the fourth quarter. The average discount to buyers for 2018 was 7.3%, while nearly 90% of the follow-ons continued to be accelerated book built or bought deals. The volatility of the fourth quarter impacted discounts, causing the average to jump to nearly 10%.

High-yield activity had a sharp decrease compared to 2017 due to a steady increase in interest rates

Overall activity declined sharply from 2017, with 2018 having the lowest activity in five years. This was caused primarily by a steadily increasing interest rate environment. There were 295 high-yield debt issuances that raised $169 billion in 2018, representing a 42% decline in activity from the previous year. While 2017 saw a large spike in activity due to anticipated rate increases, 2018 may potentially signal a coming period of relative inactivity in the bond markets.

The Energy, Utilities, and Mining sector was the most active sector, with 82 issuances raising $43 billion: 17% higher than the next largest sector (Industrial Products). This coincides with rising oil prices during the first half of 2018, before cooling off in the latter part of Q3 and Q4 as oil prices took a sharp downturn. Elsewhere, TMT continued to see a decline in deal activity, averaging a 24% decline per year in high yield activity over the past four years.

Refinancing continued to drive the high-yield market, falling in line with lower volumes to represent ~63% of total deal activity.

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.

What to expect in 2019 

Global and US equity market uncertainty is likely to continue into 2019, resulting in high volatility levels which could impact IPO issuance. The technology and biotech sectors are likely to show continued strength in the US IPO market, potentially supporting a fresh wave of investor confidence. After a sustained period of low interest rates, interest rate policy will continue to evolve alongside changing market conditions, with PwC's Global Economy Watch raising the potential for further gradual tightening during the year.

Contact us

David Ethridge

US IPO Services Leader, PwC US

Daniel Klausner

Capital Markets Advisory Leader, Deals, PwC US

Derek Thomson

Capital Markets Research Leader, Deals, PwC US

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