Investment Banking Community Divided on IPO Forecast for Second Half of 2014 According To BDO USA, LLP

June 2014

Jerry Walsh
(631) 419-9008

Chicago, IL – According to a new study by BDO USA, LLP, one of the nation’s leading accounting and consulting organizations, capital markets executives at leading investment banks are closely divided when asked to forecast the market for initial public offerings in the U.S. during the remainder of 2014. More than one-third (38%) anticipate the pace of U.S. IPO activity will increase further in the second half of 2014, while a similar proportion (35%) believe activity will be flat with the first half of the year. Just over a quarter (27%) of the bankers are predicting a decrease in deals. Overall, capital market executives are predicting a one percent increase in the number of U.S. IPOs during the second half of the year.

"The U.S. IPO market has had a very strong first half to the year, with both the number of offerings and total proceeds up significantly from a strong 2013 performance," said Wendy Hambleton, a Partner in the Capital Markets Practice at BDO USA. "Although there is no definitive forecast for further growth, based on our survey, a majority (73%) of those in the capital markets community believe the U.S. IPO market will at least maintain the current pace of offerings during the second half of 2014. This alone would make 2014 the best year for IPOs - both in offerings and proceeds - since 2000."

When asked to identify the main impetus behind the increase in U.S. IPO activity during the first half of 2014, the investment bankers were evenly divided among four key drivers - private equity (PE) and venture capital (VC) firms needing to cash in profits (27%), positive IPO performance encouraging more businesses to move forward with offerings (26%), low interest rates increasing investor demand for higher yielding assets (24%) and increased confidence in the U.S. economy (23%).

IPO Threats

In reflecting upon the greatest threat to a healthy U.S. IPO market during the remainder of 2014, almost one-third (31%) of the I-bankers cite the Federal Reserve paring back monetary stimulus, while more than one-quarter (27%) identify global political and financial instability. Other threats cited were the high number of IPOs leading to a decline in performance (22%), the threat of tax increases (15%), and high unemployment levels (3%).

Industry Forecast

For six of the past eight years the technology industry has led all sectors in bringing offerings to market. During that time, many would argue that the health of the IPO market was tightly linked to the offerings coming from the technology sector. However, in 2013 and thus far in 2014, the healthcare sector has led all industries in the number of U.S. IPOs.

Moving forward, investment bankers predict more healthcare offerings (62%) during the second half of the year and an even greater proportion forecast an increase in IPOs from the technology (71%) and energy (66%) sectors. Biotech (54%) is the only other vertical where a majority anticipate an increase in deals during the remainder of the year (see full chart below).

Industry Increase Flat Decrease
Technology 71% 26% 3%
Energy/Natural Resources 66% 26% 8%
Healthcare 62% 25% 13%
Biotech 54% 34% 12%
Real Estate 41% 40% 19%
Media/Telecom 38% 53% 9%
Industrial/Manufacturing 33% 44% 23%
Financial 30% 48% 22%
Consumer/Retail 18% 42% 40%

(Proportions of Capital Markets Executives expecting IPO activity to increase, remain stable or decrease in specific industries during remainder of 2014.)

These are just a few of the findings of The 2014 BDO IPO Halftime Report survey which examines the opinions of 100 capital markets executives at leading investment banks regarding the market for initial public offerings in the United States during the second half of the year. The survey was conducted in June of 2014.

Other major findings of The 2014 BDO IPO Halftime Report:

  • Global IPO Market Share. Through the first six months of 2014, U.S. exchanges have led all countries in proceeds from initial public offerings. When asked to identify the main reason for the U.S. leadership position in global IPO proceeds, large proportions of the bankers emphasized U.S. exchanges benefitting from private equity and VC backed offerings (43%), the improving U.S. macro-economy (25%) and increased investor cash flowing into stock-focused mutual funds (23%). Sluggish IPO activity in China (6%) was cited by a small minority.

Only one-third (34%) of investment bankers anticipate U.S. exchanges increasing their current share of the global IPO pie during the second half of the year. Approximately half (49%) predict the U.S. will maintain its current share of global proceeds during the remainder of the year, while 16 percent believe the U.S. share will decline in the second half of 2014.

  • The Source of IPOs? When asked what will be the greatest source of IPOs in the second half of the year, most capital market executives cite either private equity (44%) or venture capital (26%) portfolios. Owner-managed, privately-held businesses (20%) and spinoffs and divestitures (10%) are the other sources identified by the bankers.
  • Smaller Deals. Although U.S. IPO activity is up significantly in 2014, the size of the average IPO on U.S. exchanges has actually decreased from 2013. Many of the bankers attribute the smaller deal sizes to the absence of a mega-deal, such as Facebook or Visa, to lift the average (43%), valuation pressures forcing offering businesses to cut prices (25%) and optimism about the economy making smaller deals more attractive (19%). Smaller numbers of bankers attribute the decreased size to the JOBS Act encouraging smaller businesses to go public (9%). Moving forward, the capital markets executives believe the size of the average IPO in the second half of the year will be $243 million.

The BDO IPO Halftime Report is a national telephone survey conducted by Market Measurement, Inc., an independent market research consulting firm, on behalf of BDO USA. Executive interviewers spoke directly to capital markets executives, using a telephone survey conducted within a scientifically-developed, pure random sample of the nation's leading investment banks.

BDO USA is a valued business advisor to businesses making a public securities offering. The firm works with a wide variety of clients, ranging from entrepreneurial businesses to multinational Fortune 500 corporations, on a myriad of accounting, tax and other financial issues.


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