This year is going to end with a new record for initial public offering (IPO) activity in the U.S., according to a major IPO advisory firm. Ernst & Young LLP released its fourth quarter report on global IPO trends this week and reports a significant increase in the amount of capital raised this year compared to last year.
U.S. IPO numbers surge
The firm reports that as of this month, there have been 288 initial public offerings held on U.S.-based exchanges this year. Those offerings raised $95.2 billion, which is an increase of 54% in the amount of capital raised compared to last year. More than a third of the deals were in the healthcare sector.
Ernst & Young said last year brought about the revival of IPOs but called this year “even more exceptional.” The firm states that the number of IPOs so far this year is the highest it has been since 2000. It’s also a 27% increase over the number of IPOs that were held in 2013.
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After Alibaba Group Holding Ltd (NYSE:BABA)’s IPO in September, there came a pause in IPO activity in the fourth quarter. However, the firm adds that IPO investments have continued to be strong through the end of this year because there haven’t been many other investment options. Low interest rates also helped keep the pace of offerings up through the end of this year.
IPOs outperform the markets
Ernst & Young said also that even as the stock markets have trended higher, IPOs have been outperforming key market indices. The firm stated that companies which listed on U.S. exchanges this year have averaged returns of27.8% year to date. That’s compared to the S&P 500’s return rate of 12.2%.
Some are concerned that there’s a bubble that’s similar to the one that happened in 2000. However, EY Global and Americas IPO leader Jackie Kelley said these concerns are overblown. She said companies that are going public right now “well-led, well-priced and have a good story to tell.”
Globally, EY reported 1,206 IPOS which raised a total of $256.5 billion in capital. She said this was the best year for IPOs since 2011. In the U.S., the firm found that private equity and venture capital-backed exits were the main drivers of IPO activity. According to Ernst & Young, 181 financial-sponsored IPOs raised $68.2 billion and made up 72% of the IPOs in the U.S. according to value and 63% by number.
Alibaba IPO spurs cross-border investing
Alibaba’s successful U.S. listing has apparently brought fresh interest in investing in foreign companies. According to EY, The majority of the cross-border deals came from Europe, with 26 of them. China brought 16 cross-border IPOs, while Israel brought 12. The firm states that in the U.S., cross-border activity is still strong, as the nation makes up 52% of global cross-border deals and 80% by capital raised this year. This year the U.S. led in cross-border IPOs, attracting more than any other part of the world. Also U.S. stock exchanges led the world in both capital raised and the number of deals.
Looking ahead to 2015
The firm expects IPO activity to continue being strong in 2015, saying there’s a “robust pipeline” of more than 100 companies that are ready to go public next year. Of those companies 60 of them are expected to hold their IPOs in the first quarter and raise about $22 billion.
EY said it’s possible after-market performance could start being pressured as the pricing gap between financial sponsors and institutional investors is at a historic low. However, the firm also said, “The stage is set for the IPO window to remain open in the first quarter.”