A volatile Q3 market for initial public offerings gave way to a fertile fourth period — especially for technology-based companies early — and that is raising hopes for a continuation of the tech IPO boom in 2012.
PricewaterhouseCoopers, which keeps close track through its IPO Watch, had counted 28 Q4 U.S. pricings of IPOs overall as of Dec. 16,– all but three of them in November and December — raising $6.4 billion. PwC noted that in the comparable 2010 quarter, 63 IPOs worth $9 billion were priced, excluding General Motors’ $15.8 billion offering. So, in terms of proceeds, the current quarter is 29% lower.
Of the Q4 IPOs priced through Dec. 16, by far the leader in value was the technology sector, with its eight deals worth $2.34 billion. Last year there were also eight tech deals, but they were worth a total of $876.3 million. In second place during the current quarter was energy, which had nine deals worth $1.60 billion.
But the surge in overall activity in November, sparked by Groupon’s IPO, gives cause for hope for the entire market, and especially tech. That surge included 14 pricings that raised $2.6 billion in the span of two November weeks. PwC measured December’s third week as equally active, reaching $3.2 billion with nine pricings. And then came Q4, with a number of large offerings that helped boost average deal size to nearly $230 million for the quarter — 51% above Q3’s average d $152 million size. Besides Groupon, other giant deals included Zynga, Delphi and Michael Kors.
The “blockbuster IPOs in the last few weeks of 2011 has sparked a renewed confidence in the U.S. IPO market, which bodes well for 2012,” according to PwC U.S. Capital Markets and Accounting Advisory Services leader Henri Leveque. “Potential issuers and the investment community are watching the market very closely to see how IPOs perform, as evident by bellwether offerings causing the window to reopen for short periods of time during the fourth quarter.”
‘Nimble and Well Positioned’
Similarly, the return of larger deals in the first half of 2011, including HCA Holdings and Kinder Morgan, which raised approximately $3.8 billion and $2.9 billion, respectively, contributed to a 53% increase in 2011 proceeds to date when excluding General Motors’ $15.8 billion from 2010 total proceeds. For the year-to-date through Dec. 16, 134 IPOs overall had raised $35.4 billion in 2011, compared with 168 IPOs, worth $39 billion, the prior year.
Added Leveque: “Not only must issuers be nimble enough to navigate the markets once the window opens, they will also need to position themselves in a competitive environment with lots of companies in the pipeline vying for investors’ attention. Unresolved macroeconomic issues could continue to cause uncertainty for the near-term outlook, but will not hinder issuers’ willingness or appetite to complete an IPO when conditions are right.”
Of the 38 companies entering the IPO registration process in Q4, energy businesses accounted for eight, followed by consumer companies with seven and healthcare and financial services companies with six each. (There were also eight companies withdrawing IPOs in the quarter, after filing to go public earlier in 2011.) The year-to-date pipeline now includes 164 companies, with the industrial, technology, energy and financial services accounting for 68% of the volume.
Heavy Private Equity and VC Participation
Eighteen of the 28 IPOs in the fourth quarter 2011 to-date were backed by either private equity or venture capital sponsors, accounting for $4.9 billion of total quarterly proceeds.
According to PwC, financial sponsored IPOs contributed 77% of total proceeds in the fourth quarter. Financial sponsor-backed companies also represent 54% of the current year-to-date IPO pipeline, showing continued interest from private equity to use the equity markets as an avenue to exit.
In Q4, the steep fall-off in volume of foreign issuers coming into the U.S. IPO market continued, with only four, compared to 28 a year earlier. The main contributor for non-U.S. proceeds in the current quarter was Hong Kong-based Michael Kors, which raised $944 million.