The number of initial public offerings has dropped off sharply in the first quarter of 2015 in the U.S. and globally. International financial services firm EY published a report focusing on U.S. IPO markets and global IPO markets on Wednesday, March 25th, and both reports headline a decline in IPOs in the first quarter.
Statement from EY Global Vice Chair
Maria Pinelli, Global Vice Chair, Strategic Growth Markets at EY commented on the current slowdown in IPO activity:
“After a strong finish to 2014, a dip in the overall level of IPO activity was anticipated. However, a notable feature of the first quarter was the slower pace of IPOs in the US, which was out-performed by both Asia-Pacific and EMEIA in terms of deal numbers and capital raised. Despite this slow start, we are encouraged that valuations have been robust and market fundamentals solid, with most indices coming close to or exceeding levels not seen since 2007. Furthermore, the healthy global IPO pipeline means we expect activity to pick up strongly as the year progresses.”
Details on weak US Q1 IPO market
The EY report starts by noting the first quarter of the year is traditionally the slowest time for IPOs, but Q1 2015 will see a 46.5% decrease in the number of deals and a 53% drop in capital raised compared to the first quarter of 2014.
A total of 291 companies launched IPOs in 2014, making it the biggest year in over a decade. This year began at a different pace, as the first deal wasn’t even offered until January 16. “Quite simply, the pipeline ran dry in 1Q15,” notes Jackie Kelley, EY Global and Americas IPO Leader. “Deals that were originally slated for 2015 were pushed out in 4Q14, during favorable conditions. This was a response to the October volatility.”
However, March is looking to be the strongest month so far this year for IPOs with at least 15 deals on the slate (just 10 deals in February). Furthermore, a number of the more recent filings represent larger $100 million plus deals entering the pipeline.
Sector distribution matches historical patterns
Some analysts have argued that IPO bubbles were possible in sectors such as a life sciences and technology, but the numbers don’t back this up. The report notes that the distribution of IPO deals across sectors matches up well with past years. Also of note, the energy and power sectors lead the way, representing close to 25% of the total proceeds raised, with healthcare (21%) and technology (18%) in the second and third spots.
Global IPO activity also slow
Global IPO activity in the first quarter was also quite slow compared to 2014. According to EY Global IPO Trends: 2015 Q1, 252 IPOs raised US $38.2b in the first quarter, a 4% decline in volume and 19% drop in gross proceeds compared to the first quarter of last year. Moreover, activity was also off by 31% by number of deals and 47% by capital raised compared to last quarter.
Market volatility also likely to effect IPO activity
Pinelli argues that IPO deals are set to rev up again over the remaining nine months of the year, but deals will be constrained regionally by greater volatility caused by a variety of external factors, including elections, rate hikes or other changes in monetary policy. “As volatility increases, opportunities will remain, but conditions may be less predictable,” she said. “The level of withdrawals or postponement may rise and companies looking at an IPO will need to be able to move quickly when market windows are open as they might not stay open long.”