Last year was a banner year for U.S. initial public offerings, with the 275 IPOs raising $85.3 billion in aggregate. The market hasn’t raised that much in a year through IPOs since before the Great Recession. Also 16 offerings raised $1 billion or more, which is the most in a year since 2001.

2014 a great year for IPOs

Overall, several interesting trends were noted in 2014 by Proskauer in its IPO Study, which offered the results of their analysis of listings on U.S. exchanges in 2014. The minimum deal size the firm considered was $50 million, which meant approximately half of the market met the criterion.

The firm found that investors tended to boost IPOs by purchasing them in the after-market. The average total return in 2014 was 21%, which beat the 10-year average of 15% and almost doubled the S&P 500 Index’s return of 11.4% for the year.

Additionally, international companies started to go back to U.S. exchanges for their offerings, reversing the trend of avoidance because of regulatory barriers.

Wall Street’s appetite for risk shifts

One of the key findings was a significant shift in the risk investors were willing to take in IPOs. In the first half of the year, offerings were more likely to “price in the range” compared to the second half of the year.

Proskauer discovered that 45% of the deals in the second half of the deal were priced below the range, while 25% of the deals in the first half were priced under the range. When narrowing the number of IPOs examined to 119, the firm stated that 75% of them were priced at or above range, compared to 55% in the second half of the year. (All graphs in this article are courtesy Proskauer.)

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Also deals made in the second half mostly underperformed deals made in the first half of the deal in the after-market.

Megadeals and growth stories both attract

Alibaba’s long-awaited initial public offering was held in 2014, and the monstrous deal was one of the largest in history. And the Chinese online retailer wasn’t the only megadeal the market sucked up during the year, as several big IPOs from multiple sectors, particularly the financial sector, were picked up.

Also smaller growth stories, especially in the biotechnology or biopharmaceutical sector led the way even though they raised less than $100 million. Wall Street wasn’t even necessarily looking for earnings, with 10% of the IPOs Proskauer looked at being in the pre-revenue stage. All 12 of the pre-revenue companies were in the biotechnology or biopharmaceutical sector. Pre-revenue companies tended to price below the range more often but outperformed the after-market compared to companies with revenue.

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Fifty-five percent of the IPOs reported negative net income in their most recent audited fiscal year. The firm found that 42% of them were in the healthcare sector while 22% were in the TMT sector. They tended to outperform in the after-market compared to companies that reported positive net income.

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IPOs taking advantage of streamlined process

The firm also noticed that the Securities and Exchange Commission appeared to have streamlined the IPO process. The average number of first-round comments from the agency last year declined from 42 in 2013 to 38 in 2014.

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Also the average time between the first filing and the pricing fell from 135 in 2013 to 124 in 2014.

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Part of the streamlining of the process was the implementation of the JOBS Act (Jumpstart Our Business Startups). The firm found that 66% of the IPOS is studied were emerging growth companies (those with less than $1 billion in gross revenue in their most recently completed fiscal year) that qualified for the easier process through the JOBS Act.

The percentage matched the previous year’s study, but the firm suggested that emerging growth companies stared to become more comfortable with using it. The percentage of confidential submissions and companies deciding to release two instead of three years of audited financials increased year over year.

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Approximately 80% of emerging growth companies offered fewer than five years of financials last year. Non-emerging growth companies are required to submit three years of audited financial information and five years of selected financial information.

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IPOs perform better if insiders bought

Proskauer also discovered that IPOs in which insiders purchased shares tended to do better, especially for companies in the healthcare sector. The firm reported that insiders bought shares in 24% of the IPOs last year, with approximately half of those being priced below the range. Insiders bought 27% of the total IPO size on average.

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On the other hand, when insiders sold some of their shares in IPOs, after-market performance was poorer. Also almost 60% of these deals were price above the range.

Another big trend related to insider-owned shares was that an average of 99% of pre-IPO shares were subject to a lockup period. This statistic was similar to 2013’s percentage.

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