Last-minute surge in IPOs points to uptick in 2012: PwC report


Submitted by PricewaterhouseCoopers


PricewaterhouseCoopers IPO Watch is a quarterly and annual survey of IPOs
The value and volume of IPOs rose in the fourth quarter, jump-starting the market, PricewaterhouseCoopers reports.

NEW YORK –  Dec. 20, 2011 “ A number of new   offerings in the fourth quarter “ spurred by Groupon “ helped to jump-start the U.S. IPO markets in November after a significant drop in third-quarter pricings  due to high market volatility, according to  PricewaterhouseCoopers US (PwC US).  The market reignited in December with the return of larger offerings, including  Michael Kors and Zynga, which combined with Groupon and Delphi  raised $3.2 billion or half of fourth-quarter total proceeds.

The surge in activity and relative strength in the number and  diversification of industries in the IPO pipeline are early signs of a  healthier IPO market in 2012, according to  IPO Watch,  a quarterly and  annual survey of IPOs listed on U.S. stock exchanges by PwC  transaction  services  practice.

As of Dec. 28, pricings  raised $6.4 billion in the fourth quarter of 2011, including three priced in  October,  14 in November and 11 in  December to date.  That represents a 29 percent decrease in proceeds  compared to the year-ago period, which saw 63 IPOs worth $9 billion (excluding  General Motors $15.8 billion offering).  A surge in activity in November  initiated by the highly anticipated Groupon IPO included 14 pricings that  raised $2.6 billion in the span of just two weeks.  The third week in  December was equally active, reaching $3.2 billion with nine pricings.

According to PwC, the fourth quarter was characterized by a number of larger  offerings, which helped drive an increase in average deal size to nearly $230  million, a 51 percent increase over an average deal size of $152 million  witnessed in the third quarter of 2011.

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 percent increase in 2011 proceeds to date,   excluding General Motors $15.8 billion from 2010 total proceeds.   This  year through Dec. 16, 134 IPOs raised $35.4 billion in 2011, compared to 168  IPOs that raised  $39 billion in 2010.

A number of  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. 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, said Henri Leveque, leader of  PwC U.S.  Capital Markets  and Accounting Advisory  Services. 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.

New filings

New filing activity  remained robust during the fourth quarter, with 38 companies entering the  IPO  registration  process.  Energy  companies led IPO  pipeline entrants with eight potential new issuers, followed by consumer  companies with seven filings and health care and  financial   services  companies with six each.  In the  fourth quarter, eight companies withdrew IPOs after filing to go public earlier  in 2011.

The current  year-to-date pipeline includes 164 companies, with the four top industries  contributing 68 percent of volume:  industrial,  technology, energy and  financial services. According to PwC, the relative strength in the pipeline is a positive indicator that raising capital via an IPO remains a very viable  option in the U.S. markets.

The backlog of  companies waiting to access the capital markets may lead to a significant  increase in pricings in 2012 as the markets gain more momentum, continued Leveque.   Companies in registration are planning for the long-haul and  are using the  periods of downtime wisely to take actions to further ready their internal  organization for being public when the opportune time arrives.

Eighteen of the 28  IPOs in the fourth quarter 2011 to-date were backed by a financial sponsor  (either a private equity or venture capital firm), which accounted for $4.9  billion of total quarterly proceeds.  According to PwC, financial sponsored IPOs contributed 77 percent of total proceeds in the fourth quarter.  Financial sponsor-backed companies also represent 54 percent of the current  year-to-date IPO pipeline, showing continued interest from private equity to  use the equity markets as an avenue to exit.

Financial sponsors  have demonstrated experience in navigating volatile markets to achieve their  goal of earning a positive return on their investments.  With many  portfolios companies in the pipeline, it is expected that  private
 will continue to look to the equity  markets as an exit option for their portfolio companies, while pursuing   ˜dual-track processes for potential  M&A  prospects, added Howard Friedman, a PwC partner specializing in  IPO execution.

The fourth quarter  of 2011 continued to witness a steep decline in the volume of foreign issuers  coming to the U.S. IPO market.   In the current quarter, there were only  four foreign offerings compared to 28 pricings in the fourth quarter of 2010.  The main contributor for non-U.S. proceeds in the quarter was Hong Kong-domiciled Michael Kors, which raised $944 million.

Active Sectors

In terms of  sectors, the U.S. IPO market has maintained a diverse range across different  industries, according to PwC.   Energy and technology companies were  particularly active, contributing nine and eight offerings respectively in the  fourth quarter of 2011. Consumer and industrial companies also contributed to  the majority of proceeds raised in the fourth quarter.

Pricing remained a challenge in the quarter, in which only four offerings priced above their  projected ranges, while 12  fell below the projected range.  The remaining 12 priced within their projected  ranges. On average, fourth-quarter pricings increased 5 percent one day after  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 average  one-week return of approximately 22 percent.

For information on IPOs in emerging markets, see PricewaterhouseCoopers’  related news release on SmallBusinessExecutive,

PwC US IPO Watch  is a quarterly and annual survey of IPOs listed on U.S.  stock exchanges.  These include IPOs by domestic and foreign companies, best-efforts, business development companies, filings with the FDIC, and bank   demutualizations.   IPOs do not include unit investment trusts and fully classified closed-end funds.  

For more information about the annual  2010 US IPO Watch  and PricewaterhouseCoopers,  visit the  company’s website,