The US IPO market had its best third quarter since 2014, with 60 IPOs raising $13.4 billion. The trend continued from Q2’18, which also had its best second quarter since 2014. Well-positioned issuers in rapidly growing industries with increasingly addressable markets and proven management teams fared well. The Q3 macroeconomic environment combined with strong corporate profits also produced outperforming investment returns.
The quarter saw larger IPO pricings compared to Q3’17, with the average deal size up 24%, primarily due to three large IPOs raising more than $1 billion each. Despite a typical summer slowdown, the US IPO market continued to show strength in Q3’18 with 24 pricings in September, marking the busiest September in more than seven years.
Pharma and life science IPOs, led by biotech firms, continued to successfully attract investor interest, with 20 IPOs raising $3.3 billion. It led IPO activity for the sixth consecutive quarter, and was up 82% from Q3’17. Although the sector had the highest issuance volume, PLS IPOs raised less than TMT in Q3’18.
Technology, media and telecom IPOs boomed this quarter with 15 offerings raising $4.3 billion. By comparison, TMT issuance volume was five times that of Q3’17 volume.
SPACs also continued their recent popularity as a funding vehicle in Q3’18 with 11 pricings—a 22% increase from Q3’17. Following a trend from 2017, the SPAC IPO market is starting to see an increase in involvement by several well-established fund managers and private equity firms.
As some investors begin to anticipate a slowdown in the global GDP growth story, and with inflation starting to creep in and talk of tariffs increasing, many potential IPO issuers, including a number of unicorns, have been speeding up the pace of their IPO readiness work to enable an issuance in the near future.
The IPO window is open for well-positioned US issuers at the moment, and it is likely this window will remain open as IPOs continue to fare well as an asset class. The capital markets environment remains conducive as investors have a large amount of investable cash. Furthermore, the growth stories of IPOs can provide an attractive investment alternative and an opportunity for investors to be part of the ever-evolving business landscape.