2015 Retail IPO Outlook

This week, the President said that the economy has officially recovered, and we have “turned the page” on the downtown. If the U.S. IPO market is any indicator, he’s right. 2014 marked yet another strong year for the U.S. IPO market with Renaissance Capital reporting 273 IPOs across all industries last year, up 23 percent from 2013. Proceeds reached $85 billion, buoyed by Alibaba’s $22 billion offering. Beyond Alibaba, Healthcare and Biotechnology was a clear bright spot, with the number of IPOs nearly doubling from 2013 levels.  

The retail and consumer industry fared well, too. According to Renaissance Capital, there were 16 consumer industry IPOs in 2014, down slightly from 19 in 2013. Despite the slight drop,  they were still top performers, with GoPro seeing a 163 percent return and fast casual concepts Zoe’s Kitchen and The Habit Restaurants both gaining returns over 80%, according to Renaissance Capital’s U.S. IPO Market 2014 Annual Review.

What are the implications for 2015? Will consumer businesses face a potential Alibaba hangover?

Our 2015 BDO IPO Outlook Survey, which polls 100 capital markets executives on their expectations for IPOs, found that a plurality of bankers (45 percent) expect the number of retail and consumer IPOs to remain flat this year, and 26 percent forecast an increase.  This outlook is similar to 2014’s projections, when 52 percent of bankers expected retail and consumer IPO activity to be flat, and 22 percent forecasted an increase. Across all industries, bankers forecast a modest, but positive, two percent increase in the number of U.S. IPOs in 2015.

As my colleague, Wendy Hambleton, noted, “Given the robust performance of the U.S. IPO market during the past two years, this forecast of continued growth in the number of offerings—even two percent—is actually quite positive. If accurate, it will represent a fourth consecutive year of increased IPO activity on U.S. exchanges.”

The retail and consumer industry, while perhaps not as sensational as healthcare, is likely to be a positive contributor. Following the success of several consumer brands in 2014, there are already a number of name brand consumer companies in the pipeline this year: Shake Shack, Etsy and Party City, to name a few. In addition, positive returns from the IPO of PE-backed Michael’s in 2014 are an encouraging sign for both specialty retailers and PE-backed opportunities. Renaissance Capital reports that private equity IPOs also had a “record year” in 2014 with 71 PE-backed deals raising $25 billion. This momentum is expected to continue into 2015, according to our survey finding that private equity (38 percent) and venture capital (32 percent) portfolios are most often mentioned as sources of IPOs in the coming year.

2015 may not be a record-breaking year for retail and consumer IPOs, particularly given tough comparisons with Alibaba’s impact on 2014 numbers, but with low fuel prices and continued economic improvement, the market remains ripe with opportunity.

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