Initial Offerings Newsletter - Fall 2017

October 2017

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Flurry of IPOs to Close Q3 Bodes Well for Strong Q4


Offerings, Proceeds and Filings Have Already Surpassed 2016 Totals

While the broader U.S. stock market has been a pillar of stability in 2017, consistently climbing upward with little volatility, the U.S. market for initial public offerings (IPOs) has resembled a rollercoaster ride.  IPO activity started the year off at a crawl, before a frenzy of offerings priced in the Spring.  That was followed by a very slow Summer, prior to a flurry of activity in late September as the calendar turned to Fall.

Despite the bumpy ride, the U.S. IPO market has rebounded well from a very disappointing year in 2016, as offering activity, proceeds and filings have each already surpassed last year’s full year totals.

Through September, there have been 106 IPOs that have raised $24.6 billion in proceeds on U.S. exchanges in 2017, representing increases of 41 percent and 107 percent respectively from Q3 totals of 2016.  The 141 offering filings through the first nine months of the year also reflect a sizable (+41%) jump from a year ago.  Through Q3, U.S. IPOs have averaged $232 million in size, more than 46 percent larger than a year ago.* 
 

Capital-Markets-Initial-Offerings_Newsletter_Fall2017_CTower-(1).jpg“When you consider the divisive politics in Washington, daily threats of nuclear war from North Korea and multiple natural disasters impacting various regions of the country, the strong performance of the U.S. stock market has been extremely impressive,” said Christopher Tower, Partner in the Capital Markets Practice of BDO USA. “Given that resiliency and the jump in offerings during the second half of September, there is every reason to believe that IPO activity can gain momentum in Q4 and complete a strong rebound from a difficult 2016.” 



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*Heavily impacted by $17.9 billion VISA IPO
Source:
Renaissance Capital, Greenwich, CT (www.renaissancecapital.com)

 

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Source: Renaissance Capital, Greenwich, CT (www.renaissancecapital.com)
 

Industries

For the fifth consecutive year, the healthcare sector – with 32 IPOs - is leading all industries in the number of offerings brought to market.  Biotech IPOs have been the key driver in healthcare and they should continue to propel offering activity moving forward.

The technology industry has the second most IPOs through Q3, but those 19 offerings are far below expectations.  Many had hoped that 2017 was going to be the year that many of the tech “unicorns” (private companies valued at more than $1 billion) would leave their private stables for the open range of the public markets, but only a few made the trip. 

Given the poor performance of the Snap and Blue Apron IPOs, each still trading below their offering price, there is renewed doubt about the valuations of these private Silicon Valley businesses, leading to a continued resistance to testing the public waters.

The financial (13), energy (13) and industrial (10) sectors are also strong contributors to this year’s IPO rebound.  No other industry has reached double digits in offerings this year.
 

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Capital-Markets-Initial-Offerings_Newsletter_Fall2017_JJaramillo.jpg“For some time now, IPO market observers have been waiting for the technology sector to spring to life and assume its traditional place as the U.S. IPO leader. Unfortunately, every time activity begins to pick up, some poor debuts, most recently by Snap and Blue Apron, have caused other potential tech IPOs to postpone their offering plans,” said Lee Duran, Partner in the Private Equity Practice of BDO USA. “However, there have been successful technology offerings this year. Seattle-based, Redfin, the online real estate company, had a successful launch in late July and it continues to trade well above its offering price. More recently, Roku, the television streaming service, surged 90 percent on its initial two days of trading at the close of Q3. This type of performance is exactly what is needed to entice more of the Silicon Valley set to join the public markets.” 

 

Q4 Forecast

As we enter the final quarter of 2017, the U.S. IPO market is heating up again.  U.S. stock markets remain near all-time highs with very little volatility, making for an attractive market for new offerings.  With filing activity picking up and a suspected strong backlog of confidential filers, the rebound that began last Spring looks to be starting up again as we enter Q4.

Positive market conditions that have been present throughout the year and the strong performance of offerings overall - the average IPO has delivered better than 20 percent return in 2017 - is likely to drive additional pricings through year-end.

The 2017 BDO IPO Outlook survey of leading investment bankers, released last January, predicted approximately 120 IPOs averaging $235 million in size on U.S. exchanges in 2017, which projected to more than $28 billion in proceeds.  If the IPO market merely maintains its year-to-date performance through Q4, the Outlook’s forecast will be comfortably exceeded.
 


Capital-Markets-Initial-Offerings_Newsletter_Fall2017_JJaramillo.jpg“Although the SEC’s decision to extend the JOBS Act’s confidential filing provision to all offering companies was a welcome move that should encourage more offerings, it also greatly reduces the visibility of the IPO pipeline,” said Jeff Jaramillo, SEC Practice Leader at BDO USA. “However, with 50 public filings in Q3 as a baseline, it is safe to assume that there is a healthy quantity of potential offering companies ready to move forward should the environment continue to remain favorable for IPOs.” 


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For more information on BDO’s Capital Markets services, please contact one of the regional leaders:
 
Jeff Jaramillo
Washington, D.C.
  Christopher Tower
Orange County

 
Lee Duran
San Diego
  Ted Vaughan
Dallas

 
Paula Hamric
Chicago