Submitted by PricewaterhouseCoopers
NEW YORK –Â Dec. 20, 2011 â€“ A number of newÂ offerings in the fourth quarter â€“ spurred by Groupon â€“ helped to jump-start the U.S. IPO markets in November after a significant drop in third-quarter pricingsÂ due to high market volatility, according toÂ PricewaterhouseCoopers US (PwC US).Â The market reignited in December with the return of larger offerings, includingÂ Michael Kors and Zynga, which combined with Groupon and DelphiÂ raised $3.2 billion or half of fourth-quarter total proceeds.
The surge in activity and relative strength in the number andÂ diversification of industries in the IPO pipeline are early signs of aÂ healthier IPO market in 2012, according toÂ IPO Watch,Â a quarterly andÂ annual survey of IPOs listed on U.S. stock exchanges by PwCâ€™sÂ transactionÂ servicesÂ practice.
As of Dec. 28, pricingsÂ raised $6.4 billion in the fourth quarter of 2011, including three priced inÂ October,Â 14 in November and 11 inÂ December to date.Â That represents a 29 percent decrease in proceedsÂ compared to the year-ago period, which saw 63 IPOs worth $9 billion (excludingÂ General Motorsâ€™ $15.8 billion offering).Â A surge in activity in NovemberÂ initiated by the highly anticipated Groupon IPO included 14 pricings thatÂ raised $2.6 billion in the span of just two weeks.Â The third week inÂ December was equally active, reaching $3.2 billion with nine pricings.
According to PwC, the fourth quarter was characterized by a number of largerÂ offerings, which helped drive an increase in average deal size to nearly $230Â million, a 51 percent increase over an average deal size of $152 millionÂ witnessed in the third quarter of 2011.
Similarly, theÂ return of larger deals in the first half of 2011, including HCA Holdings andÂ Kinder Morgan, which raised approximately $3.8 billion and $2.9 billionÂ respectively, contributed to a 53 percent increase in 2011 proceeds to date,Â excluding General Motorsâ€™ $15.8 billion from 2010 total proceeds.Â ThisÂ year through Dec. 16, 134 IPOs raised $35.4 billion in 2011, compared to 168Â IPOs that raised Â $39 billion in 2010.
â€œA number ofÂ blockbuster IPOs in the last few weeks of 2011 has sparked a renewed confidenceÂ in the U.S. IPO market, which bodes well for 2012. Potential issuers and theÂ investment community are watching the market very closely to see how IPOsÂ perform, as evident by bellwether offerings causing the window to reopen forÂ short periods of time during the fourth quarter,â€ said Henri Leveque, leader ofÂ PwCâ€™s U.S.Â Capital MarketsÂ and Accounting AdvisoryÂ Services. â€œNot onlyÂ must issuers be nimble enough to navigate the markets once the window opens,Â they will also need to position themselves in a competitive environment withÂ lots of companies in the pipeline vying for investorsâ€™ attention.Â UnresolvedÂ macroeconomic issues could continue to cause uncertainty for the near-termÂ outlook, but will not hinder issuersâ€™ Â willingnessÂ or appetite to complete an IPO when conditions are right.â€
New filing activityÂ remained robust during the fourth quarter, with 38 companies entering theÂ IPOÂ registrationÂ process.Â EnergyÂ companies led IPOÂ pipeline entrants with eight potential new issuers, followed by consumerÂ companies with seven filings and health care andÂ financialÂ servicesÂ companies with six each.Â In theÂ fourth quarter, eight companies withdrew IPOs after filing to go public earlierÂ in 2011.
The currentÂ year-to-date pipeline includes 164 companies, with the four top industriesÂ contributing 68 percent of volume:Â industrial,Â technology, energy andÂ financial services. According to PwC, the relative strength in the pipeline is a positive indicator that raising capital via an IPO remains a very viableÂ option in the U.S. markets.
â€œThe backlog ofÂ companies waiting to access the capital markets may lead to a significantÂ increase in pricings in 2012 as the markets gain more momentum,â€ continued Leveque.Â â€œCompanies in registration are planning for the long-haul andÂ are using theÂ periods of downtime wisely to take actions to further ready their internalÂ organization for being public when the opportune time arrives.â€
Eighteen of the 28Â IPOs in the fourth quarter 2011 to-date were backed by a financial sponsorÂ (either a private equity or venture capital firm), which accounted for $4.9Â billion of total quarterly proceeds.Â According to PwC, financial sponsored IPOs contributed 77 percent of total proceeds in the fourth quarter.Â Financial sponsor-backed companies also represent 54 percent of the currentÂ year-to-date IPO pipeline, showing continued interest from private equity toÂ use the equity markets as an avenue to exit.
â€œFinancial sponsorsÂ have demonstrated experience in navigating volatile markets to achieve theirÂ goal of earning a positive return on their investments.Â With manyÂ portfolios companies in the pipeline, it is expected thatÂ private
equityÂ will continue to look to the equityÂ markets as an exit option for their portfolio companies, while pursuingÂ â€˜dual-track processesâ€™ for potentialÂ M&AÂ prospects,â€ added Howard Friedman, a PwC partner specializing inÂ IPO execution.
The fourth quarterÂ of 2011 continued to witness a steep decline in the volume of foreign issuersÂ coming to the U.S. IPO market.Â In the current quarter, there were onlyÂ four foreign offerings compared to 28 pricings in the fourth quarter of 2010.Â The main contributor for non-U.S. proceeds in the quarter was Hong Kong-domiciled Michael Kors, which raised $944 million.
In terms ofÂ sectors, the U.S. IPO market has maintained a diverse range across differentÂ industries, according to PwC.Â Energy and technology companies wereÂ particularly active, contributing nine and eight offerings respectively in theÂ fourth quarter of 2011. Consumer and industrial companies also contributed toÂ the majority of proceeds raised in the fourth quarter.
Pricing remained a challenge in the quarter, in which only four offerings priced above theirÂ projected ranges, while 12 Â fell below the projected range.Â The remaining 12 priced within their projectedÂ ranges. On average, fourth-quarter pricings increased 5 percent one day afterÂ pricing and about 6 percent one week following the IPOs. The consumer industry, helped by the Michael Kors offering, had the highest average day-one return of approximately 18 percent, while the technology industry had the highest averageÂ one-week return of approximately 22 percent.
For information on IPOs in emerging markets, see PricewaterhouseCoopers’Â related news release on SmallBusinessExecutive, http://www.smallbizchicago.com/2011/12/emerging-markets-gain-traction-for-ipos-pwc/.
PwC US IPO WatchÂ is a quarterly and annual survey of IPOs listed on U.S.Â stock exchanges.Â These include IPOs by domestic and foreign companies, best-efforts, business development companies, filings with the FDIC, and bankÂ demutualizations.Â IPOs do not include unit investment trusts and fully classified closed-end funds.Â