U.S. IPO Confidence Returns for Companies and Investors in 2012

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New York, January 23, 2012 – The end of 3Q boasted a U.S. IPO pipeline full and primed for companies to go public in 4Q. Now, due to recent gains in the stock market, both companies and investors are feeling more confident about IPOs according to EY’s U.S. IPO Pipeline Analysis. The update, reported during the fourth quarter of 2011, showed 27 effective IPOs were issued, an increase of 69% from 3Q. The top sectors for new IPO registrations are Technology, Oil & Gas, and Banking and Capital Markets. These sectors combined have 74 registrations, and account for 42% of the total registrations as of 4Q, 2011. A further breakdown of the 178 IPOs currently in the pipeline shows that 37 or 21% are in Technology, 19 or 11% in Oil & Gas, and 18 or 10% in Banking and Capital Markets. On average, the IPOs on file with the SEC have been in registration for 7 months.

“Good companies are always able to raise capital,” said Jackie Kelley, Americas IPO Leader for Ernst & Young LLP. “Even though the past couple of years have been very volatile for IPOs, these companies that have been waiting in the pipeline have had time to evaluate their options, better prepare, and get ready to tell their story. Companies that have managerial diligence and endurance and organizational discipline before going public always attract great investors-and that’s what we’ll see in 2012”

Although new IPO registrations declined 29% to 46 in 4Q compared to 65 in 3Q, the two quarters had a reverse trend. In 3Q, new registrations in July, August and September were 27, 23 and 15, respectively. In 4Q, new registrations in October, November and December were 9, 17 and 20, a sign of growing optimism.

Postponed IPO registrations also decreased 47% in 4Q down to 8 from 15 in 3Q. There was however, a slight increase in IPO withdrawals, from 11 in 3Q to 12 in 4Q. Four of the 12 withdrawals were Chinese firms.

“You can’t talk about IPOs in the market without also having a conversation around M&A as we think they go hand in hand,” said Herb Engert, Americas Strategic Growth Markets Practice Leader for Ernst and Young LLP. “We are positive about the M&A environment as it has been strong and continues to look promising going into 2012. There is a lot of corporate cash on the balance sheet and a lot of options out there. I think we will still see some choppiness in the markets but overall confidence is returning among investors.”

Top IPO Sectors Breakdown

Banking and Capital Markets
In 2011, BCM IPOs were almost nonexistent, except for the offerings of Imperial Holdings and private equity backed BankUnited. However, there was a large list of new registrants who are still on file as of 4Q. These registrants are mainly consumer finance and mortgage finance companies, such as Enova International, Nationstar Mortgage, Home Loan Servicing Solutions, and Ally Financial. There were 18 BCM registrants in the pipeline at the end of 2011 and registered to raise total proceeds of $3.5 billion in 2012. In 4Q, no BCM companies went public. The two companies that withdrew their IPOs are Midland States Bancorp Inc. and Macon Financial Corp with filing proceeds of $75 million and $56.2 million, respectively. HomeStreet Inc, a thrift and mortgage finance company with filing proceeds of $210 million, announced that it will postpone its offering due to market concerns about liquidity and price volatility. The company cut its offering size from 7.8 million shares to 7.2 million shares prior to the delay reducing its planned offering to $165 million. On average, BCM IPOs on file with the SEC have been in registration for 200 days or 6.7 months.

Oil & Gas
The Oil & Gas sector continued to improve in 4Q with the Southwest dominating this area. There were 10 IPOs issued with total proceeds of $2.4 billion in 4Q, compared to 5 issues and $1.5 billion proceeds in 3Q. In 4Q, five companies entered the pipeline seeking to raise $1.2 billion in proceeds. Among the new registrants was Midstates Petroleum Co, an oil and gas exploration company founded in 2006 looking to raise $400 million. WPX Energy with $750 million filing proceeds withdrew its offering in December due to the company's decision to perform a tax-free spin-off, and listed on the NYSE on January 3, 2012 at $3.5 billion. At the end of 2011, there were 19 registrants expected to raise about $5.2 billion in total proceeds. The top five companies in the pipeline are FTS International Inc, PetroLogistics LP, Midstates Petroleum Co, Dynamic Offshore Resources Inc, and Whiting USA Trust II. Combined, these companies are seeking to raise more than $2.9 billion in proceeds, which is 56% of the sector. On average, O&G IPOs on file with the SEC have been in registration for 136 days or 4.5 months.

Technology
Technology IPO volume increased only slightly from 2010 to 2011, but the overall value increased 72% and raised more than $8 billion in proceeds. In 4Q alone, there were eight effective technology IPOs and the sector was highlighted by social media IPOs including: Zynga ($1b), Groupon Inc. ($805m) and Angie’s List ($132m). In the pipeline, the software and hardware firms are among the top in filing proceeds. Avaya Holdings plans to raised $1 billion and ConvergEx Inc. is seeking $400 million. On average, Tech IPOs on file with the SEC have been in registration for 177 days or 5.9 months.

The EY U.S. IPO Pipeline analysis is issued quarterly as a forward-looking indicator of the IPO market. The IPO Pipeline data are refined to eliminate bias from financial services organizations, real estate investment trusts (REITs) and other holding companies that represent assets under management instead of core businesses. It also eliminates any registrations sitting on the books for more than 12 months – long-term applicants that may bloat numbers, but don’t reflect current market trends.

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