“We are bullish about the prospects for 2012. The pipeline is strong and market conditions are improving.”
US IPO Leader,
Ernst & Young
The US IPO market started 2011 in an upbeat mood, but activity dried up in the second half of the year.
Europe's debt worries, other nations exhibiting slower economic indicators and a volatile equity market were investors’ main concerns. Nonetheless, total funds raised fell from 2010 by only 8% to US$40.2b in 2011.
Pipeline is robust
With the markets volatile and valuations uncertain, the number of IPOs fell in 2011 from the previous year by 24% to 124, but we expect to see this number increase significantly in 2012. There is a strong pipeline of approximately 200 companies ready to list once conditions stabilize.
Hot sectors include technology, real estate, oil and gas, pharmaceuticals and consumer retail. We also expect to see a solid level of IPO carve–outs and spin–offs in 2012.
Recognizable names planning to access the US capital markets include Ally Financial, Fender Musical Instruments, Kayak.com, Norwegian Cruise Lines and Toys R Us, to name a few.
US capital markets ramp up for the JOBS Act
In an effort to boost job creation and economic growth, the Jumpstart Our Business Startups Act (JOBS Act or the Act) was enacted on 5 April 2012. The JOBS Act eases some of the regulatory requirements on companies seeking access to capital from both the US private and public markets.
The Act creates a new category of issuer called an emerging growth company that would be able to offer stock through an IPO and phase in certain SEC reporting requirements.
Private companies would get greater access to funding without triggering public reporting requirements. It also would increase the shareholder threshold for mandatory registration and expand Regulation A offerings up to US$50m.
The Act would also allow private companies to raise money through crowdfunding in certain circumstances.
Companies preparing earlier
Markets are likely to remain unpredictable throughout 2012. In response, we see IPO candidates adopting a “get ready early, then wait” approach. Usually, staying in the pipeline for several months without bringing a deal to the market would be a sign of weakness, but in the current environment, that is not the case.
Investors no longer penalize companies that file their IPO intentions and then wait for the optimum moment to list. The imperative is to move fast once a market window opens.
Internet and social media companies showed the way
Many of the successful IPOs we saw in 2011 involved companies from this sector. This partially reflects the US’s growing dependence on the products and services provided by social media and internet companies.
The average market value for US social media companies at the time of their IPO was double the average market value of firms from other sectors. This also reflects the fact that these companies tended to float smaller percentages of their shares (typically 10% to 15%); we expect to see more candidates from other business areas copying that IPO strategy in 2012.
Private equity stepped up to the plate
The number of IPOs backed by private equity firms fell in 2011, reflecting the lower number of deals across the market as a whole, although the number of completed private equity listings as a proportion of total IPOs actually increased. 2011 saw the largest PE–backed IPO ever — the US$4.4b IPO of the US’s largest hospital chain operator, HCA Holdings Inc.
Moreover, private equity firms were behind eight of the ten largest IPOs. We expect this trend to continue in 2012 as private equity plays an increasingly important role in the IPO market. In addition, venture capital backed companies represented 26% of US IPOs by capital raised (US$10.3 billion via 52 deals).
Strong foreign appeal
With the continued economic difficulties in Europe, we expect more European companies listing on US markets in 2012. The same applies to those from China, even though their equity markets are maturing rapidly.
In 2011, Chinese companies made up 11% of US IPOs by number of deals and 5% by capital raised (US$2.1b in 14 deals), while European companies comprised 3% of US IPOs by number of deals and 5% by capital raised (US$1.9b in 4 deals).
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