IPO pipeline maintains strength as private equity-backed companies go public

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NEW YORK, 16 May 2011 – The first quarter of 2011 ended with 125 companies in the IPO pipeline representing $18.4 billion – four more companies, but less than the $23.1 billion in Q4 2010, according to the quarterly Ernst & Young LLP US IPO Pipeline study. The three largest pipeline companies to go effective, namely HCA Holdings Inc. (registered for $4.4 billion), Kinder Morgan Inc. (registered for $3.3 billion) and Nielsen Holdings NV (registered for $1.9 billion), were all private equity-backed companies.

Continuing the trend of increased activity, more PE-backed companies also entered the IPO pipeline. In all, 39 PE-backed companies were in the pipeline at the end of Q1. The only billion-dollar company in the pipeline this quarter, Freescale Semiconductor Holdings I, Ltd., was the largest PE buyout of a technology company on record in 2006. It is registered for a $1.2 billion IPO.

"We expect to continue to see robust IPO activity from private equity sponsors as they work both to de-lever and initiate the process of exiting their portfolio companies acquired in the last five years," said Jackie Kelley, Americas IPO Leader, Ernst & Young LLP. "Investor appetite for PE-backed offerings has been tested and reinforced over the last several quarters."

Two of the 10 largest pipeline registrants in Q1 are foreign companies, Canada-based Lone Pine Resources Inc ($375 million) and China-based Home Loan Servicing Solutions, Ltd. ($316 million). Fifteen of the 19 foreign-owned companies are from China, representing $788 million, compared to a total of $585 million for other foreign-owned companies.

"The pipeline's increasing number of China-based companies is also a result of attractive US markets," says Maria Pinelli, Americas Director, Strategic Growth Markets, Ernst & Young LLP. "Foreign registrants peaked in the last two quarters and now represent 15% of the pipeline, three times more than we had in Q1 of 2010. Leading the activity, 75% of those are from China. Aside from a few large foreign companies, most of the non-US pipeline activity comes from smaller deals that present huge growth opportunities in many industries, including tech, consumer goods, professional services and industrials.

With the combination of large-deal turnover and strong activity among small companies, average deal size descended to $147 million from $191 million in Q4 2010 and $198 million in Q3 2010. Deal volume sits at pre-recession highs, while the average deal size reflects the advent of smaller companies accessing the capital markets as well as larger companies.

Year-over-year Ernst & Young LLP US IPO Pipeline comparison:

Time period # of companies in the Pipeline Total dollar amount in the Pipeline Average deal size in the Pipeline # of US IPOs that went public in the quarter
End of Q1 2009 44 $11.7 billion $265.8 million 2
End of Q1 2010 80 $11.4 billion $141.9 million 27
End of Q1 2011 125 $18.4 billion $147.1 million 27

By industry, technology continues to lead the pipeline, with 27 deals representing $4.0 billion, including 14 new registrants. Oil & Gas companies surged in activity, with seven new entrants, bringing the industry total to nine deals representing $2.1 billion. Energy Services also grew with four new registrants out of the five companies in the pipeline.

Other active industries include 12 professional firms and services companies (seeking $1.1 billion), 10 banking and capital markets companies (seeking $1.6 billion) and 10 pharmaceutical companies (seeking $604 million).

A state-by-state comparison shows that California continues to remain the most active with 25 companies seeking $2.2 billion. Texas hosts 15 companies seeking $4.3 billion. Connecticut and Florida each have six companies seeking $1.1 billion.

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

About EY's Strategic Growth Markets Practice 
Ernst & Young LLP's Strategic Growth Markets (SGM) practice guides leading high-growth companies. Our multi-disciplinary team of elite professionals provides perspective and advice to help our clients accelerate market leadership. SGM delivers assurance, tax, transactions and advisory services to thousands of companies spanning all industries. EY is the undisputed leader in taking companies public, advising key government agencies on the issues impacting high-growth companies and convening the experts who shape the business climate. For more information, please visit us at www.ey.com/us/strategicgrowthmarkets, or follow news on Twitter at EYSGM.

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