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 divided when asked what they consider to be the most important factor for generating more IPOs on U.S. exchanges during the second half of the year. Close to one-third (30%) cite the need for a sustained stock market rally of more than a quarter and close to one-quarter (23%) point to the need for better pricings and improved returns from new offerings. Pricing of a high-profile offering (21%), a correction in lofty private valuations (16%) and a pullback in M&A activity (9%) were other potential IPO drivers identified by the bankers.
During the remainder of 2016, one-third (34%) of bankers predict the pace of U.S. IPO activity will increase from the first half of the year, while approximately one-fifth (18%) forecast a decrease in offering activity. Close to half (47%) anticipate IPO activity will remain at the same level as the first half of the year. Overall, capital market executives are predicting a slight increase (+ 5%) in the number of U.S. IPOs during the second half of the year. They predict offerings will average $190 million in size, which projects to just over $15 billion in total IPO proceeds on U.S. exchanges in 2016. This would represent the lowest level of offerings since 2009, the height of the financial crisis, and lowest amount of proceeds since 2003.
“Although the U.S. IPO market began to show signs of life in May, almost doubling the number of offerings priced during the first four months of the year, it remains well behind the pace of 2015 and the average for the past decade, said Paula Hamric, director in the Capital Markets Practice of BDO USA. “In our survey, sizable proportions of the investment banking community cite different factors when asked for the key to getting the U.S. IPO engine running again. However, the overarching theme is an aversion to the risk associated with making an offering in increasingly discerning public markets versus the certainty of private funding or a sale. Until these alternatives become less attractive and IPO performance improves, growth in offering activity is likely to be minimal.”
When asked to identify the main factor in the dramatic drop in the number of IPOs on U.S. exchanges in 2016, the investment bankers identified four key drivers - stock market volatility during the initial weeks of the year (41%), the availability of private funding at attractive valuations (23%), the poor performance of 2015 IPOs (19%) and the rise in M&A activity causing more businesses to opt for the price certainty of a sale over the risk of an offering (16%).
Better than two-thirds (68%) of I-bankers contend that the U.S. Presidential election will have an impact on the U.S. IPO market. When asked which of the U.S. presidential nominees would be better for the U.S. IPO market, a majority (58%) of the capital markets community identified Donald Trump, compared to just one-third (32%) that chose Hillary Clinton. The remaining bankers (10%) expressed no preference between the two candidates in terms of impact upon the US IPO market.
Industry Forecast for U.S. IPOs.
For the fourth consecutive year, the healthcare sector – driven by biotech - is leading all industries in the number of IPOs priced on U.S. exchanges. Two-thirds (66%) of investment bankers believe this trend will continue in the second half of 2016. Of the one-third (34%) who believe another industry will emerge with more offerings during the remainder of the year, 72 percent predict the technology industry will lead the way.
The Source of IPOs.
When asked to identify the primary source of IPOs in the second half of the year, forty-one percent of capital market executives identified private equity firms. Lesser proportions cited venture capital portfolios (22%), spinoffs and divestitures (21%) and owner-managed, privately-held businesses (15%).
The BDO IPO Halftime Report
is a national telephone survey conducted by Market Measurement, Inc., an independent market research consulting firm, on behalf of the capital markets practice of BDO USA. Executive interviewers spoke directly to 100 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.
About BDO USA
BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through more than 60 offices and more than 400 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of more than 1,300 offices in over 150 countries.
BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information, please visit: www.bdo.com