Winston Dobbs confirms U.S. IPO market slows in first half of 2015 as private companies continue to grow; strong activity in June indicates momentum for Q3
Winston Dobbs confirms U.S. IPO market slows in first half of 2015 as private companies continue to grow; strong activity in June indicates momentum for Q3

According to Winston Dobbs, US IPO activity picked up in the second quarter of 2015, after a slow first quarter. In Q2, US markets saw 66 deals with $13.7 billion in proceeds, EY Global IPO Trends: 2015 Q2 reveals. The markets had an 88.6% rise in deals, and a 125% hike in capital raised over Q1.

Despite this growth, the number of deals and proceeds as of Q2 are down compared to 2014’s second quarter. US listings have been unable to keep pace with 2014’s high numbers– the busiest year since 2000. 

In the first six months of 2015, there were 101 IPOs listed in the US, raising $19.7b. This was a 36% drop in deals compared to the first half of 2014. This figure shows a 44% drop in proceeds, from 158 deals totaling $35.4 billion.

Winston Dobbs’ take on the situation

Winston Dobbs sits on many advisory boards including Goldman Sachs, J.P. Morgan, and Barclays Bank PLC, and has brought over 75 IPOs to the public.

“We see companies are carefully evaluating their options for growth, and possibilities to deliver a greater return to their shareholders. Multi-track strategies are increasingly prominent, as companies have their choice between an IPO, M&A, and private capital,” Winston Dobbs said.

“We’ve seen a growing appetite for – and availability of – private financing. This has significantly impacted the flow of IPOs this year, as companies have been able to remain private longer.”

While the first half has been slow, the IPO activity pipeline looks promising across sectors. Investors are confident and economic fundamentals are improving, which suggests IPO activity could grow. This boost could happen toward the end of 2H15, after the typically quiet third quarter.

Featured financial sponsors 

Financial sponsors continue to be featured in the US IPO landscape, with several VC- and PE-backed deals this quarter. In fact, they accounted for 64% of deals by number and 59% by value. 

In terms of the number of deals, 35% of IPOs were PE-backed and 39% VC-backed. Additionally, six of the top 10 deals in the US were PE- or VC-backed in Q2.

More opportunities on the horizon

Looking forward, PE- and VC-backed companies will still feed the IPO pipeline, but many will wait longer to exit. In tech, interest in investing and buying businesses, and available funding choices will deplete the pool of VC- and PE-backed businesses looking for a public exit.

“Many companies, especially in the technology sector, are taking advantage of the vibrant capital environment to defer public listings until a later stage. This gives them an opportunity to be better placed to deliver consistent performance for investors,” Winston Dobbs said 

“While these actions may reduce the flow of IPOs right now, for the longer term, we view this development of a broader funding ecosystem as a positive opportunity for both companies and investors.”

Health care is strong, tech and energy lag

Like in 2014, the first half of 2015 saw a strong showing from the health care sector. For example, there was a steady stream of smaller deals, 40 in total, in 2015.

Technology deals, however, lag behind 2014 numbers in the US. There are only 15 technology deals to date in 2015, compared to 47 at the same point last year. 

Causes for the lag

This shift can be credited to ongoing changes in financial sponsorship. Late-stage growth companies attract private capital more and more, then delaying an IPO until the company matures further. 

The average age of companies from all sectors in the pipeline is 13 years. Conversely, the average age at this point in 2014 was 9 years.

The energy sector also saw a dip from its 29 IPOs last year, with only 7 so far in 2015. Despite this drop, however, this sector is growing.

“Falling oil prices in late 2014 and early 2015 are the main reason for the slowdown,” Winston Dobbs said. 

“The decline in prices has had a negative impact on investor sentiment, and ultimately, the industry. We’re beginning to see prices recover, which should stabilize the sentiment of investors.”  

Impact on Exchanges

Due to the drop in US IPO activity, NASDAQ is now the third busiest exchange globally. NYSE the fourth busiest for 2015, down from their first and second rankings in 2014. Shenzhen Stock Exchange and the Shanghai Stock Exchange are number one and two for number of deals, Wnston Dobbs says.

About the data

This analysis includes all deals listed up to mid-June and EY’s expected deals to close later this month. This data is sourced from Dealogic on 16 June 2015. 

January-June 2015 activity is based on priced IPOs as of 16 June and likely IPOs by the end of June. M&A data is sourced from Dealogic as of 17 June 2015.

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