IPO Study presentation by Proskauer

Overview

Our study provides a comprehensive analysis of the 2013 US IPO market.

We examined several key aspects of IPOs, including:

  • The JOBS Act
  • Financial profiles and accounting disclosures
  • SEC comments and timing
  • Corporate governance
  • IPO expenses
  • Deal structure
  • Lock-ups
  • Sponsor-backed companies

We reviewed 100 of the 136 IPOs that priced in 2013 and met our study criteria.

Key Takeaways

  • The JOBS Act – The JOBS Act continues to be an integral component to most IPOs today as 77 companies in our study qualified as EGCs. 68 (88%) of these EGCs elected to confidentially submit their first filing. Despite being required to provide only 2 years of audited and selected financials, the majority of the companies provided financial information for additional years.
  • Financial Profiles and Accounting Disclosures – The financial profiles of the issuers varied greatly: 91% were revenue generating, while only 41% had positive net income and 46% reported a positive adjusted EBITDA. Of the 100 IPOs, 11% had a going concern opinion, 17% disclosed a material weakness and 9% had restated financials in the IPO prospectus.
  • SEC Comments – The average number of total first round SEC comments was 42.
  • Corporate Governance – For the 61 non-controlled companies, 58 (95%) had a majority of independent directors on their Boards at pricing. For the 39 controlled companies, only 10 (26%) had a majority of independent directors on their Boards at pricing. The 68 IPOs in our study with a majority of independent directors on their Boards outperformed in the aftermarket relative to the 32 IPOs that did not have a majority of independent directors on their Boards.
  • IPO Expenses (excluding underwriting discount) – Companies spent $4.2 million, on average, for IPO expenses. On average, EGCs spent $3.7 million and non-EGCs spent $5.9 million.
  • Deal Structure – The 15 IPOs in which management sold in the IPO outperformed in the aftermarket relative to those in which management did not sell. Insiders purchasing in the IPO did not hinder the longer term aftermarket performance of these IPOs.
  • Lock-ups – On average, 99.2% of the shares were locked up. 40% of the IPOs required all bookrunners to release the lock-up, while 39% required a subset of bookrunners and 21% required only the lead left bookrunner.
  • Sponsor-backed companies – 17 sponsor-backed companies paid termination or management fees to the sponsor group from IPO proceeds. The fee ranged from $3.3 million to $79.9 million. The sponsor had invested in the company at least 2 years prior to the IPO in 15 of 17 (88%) of these IPOs and at least 4 years prior to the IPO in 11 of 17 (65%).

Industry Specific

  • Sector Activity – Our detailed industry analysis focuses on health care, TMT, consumer/retail, financial services and industrials. Health care, particularly biotech/biopharm, and TMT IPOs dominated the 2013 market and we saw significant IPO activity for companies based in California, followed by Massachusetts and New York.
  • The JOBS Act – Consumer/retail and financial services companies tended to provide more financial information than the broader group of IPOs in our study. Compared to the other industries, health care companies most frequently used testing-the-waters communications and provided only the 2 years of audited financials required for EGCs.
  • Financial Profiles and Accounting Disclosures – Industrials IPOs were more mature operating companies and 9 of 10 (90%) of the industrial IPOs had positive EBITDA and/or adjusted EBITDA. 10 of 11 (91%) of the companies that received a going concern opinion were health care companies.
  • SEC Comments – Financial services and health care IPOs tied for the lowest average number of total first round SEC comments (36 comments) and consumer/retail and industrials IPOs tied for the highest average number (51 comments). TMT had the highest percentage of IPOs that received an SEC comment on cheap stock as well as revenue recognition, while industrials had the highest percentage with an SEC comment on segment reporting.
  • Corporate Governance – The majority of consumer/retail, financial services and industrials IPOs were eligible for and elected to take advantage of the controlled company exemption. Multiple classes of common stock were most common in financial services IPOs.
  • IPO Expenses (excluding underwriting discount) – On a sector basis, health care had the lowest average for total IPO expenses ($3.3 million) and consumer/retail had the highest average ($5.9 million).
  • Deal Structure – We identified interesting distinctions in deal structure among the different sectors. For example, TMT had 6 IPOs with management sales, which was the highest number among the sectors and 40% of the 15 IPOs with management sales in our overall study. 19 of 21 (90%) of the IPOs with insiders purchasing in the IPO were in health care. In financial services, consumer/retail and industrials, 50% or more of the IPOs included a directed share program.
  • Lock-ups – Most IPOs required all or a subset of bookrunners to release the lock-up. For IPOs that required only the lead left bookrunner to release the lock-up, the results varied by industry: health care: 5 of 31 deals (16%), TMT: 6 of 29 deals (21%), consumer/retail: 2 of 14 deals (14%), financial services: 4 of 11 deals (36%) and industrials: 2 of 10 deals (20%).
  • Sponsor-backed companies – We did not identify material differences in our study between sponsor-backed companies (57% of the IPOs in our study) and companies without sponsors. Sponsor-backed companies were most common in consumer/retail (12 of 14 companies (86%)) and industrials (8 of 10 companies (80%)). Termination or management fees were paid in connection with the IPO in industrials (6 IPOs), consumer/retail (5 IPOs), TMT (4 IPOs) and health care (2 IPOs).

IPO by sector

See full IPO Study in PDF format here.