IPOs Down 53% Year-Over-Year by Andrew Birstingl, Research Analyst, FactSet
Activity in the IPO market picked up in Q2 after a period of stagnation in Q1, but it is far from booming. The number of companies going public on United States exchanges in Q2 2016 was 32, representing a 53% decline from Q2 2015. This marked the lowest second quarter count of initial public offerings since Q2 2009, when there were 14 IPOs (Q2 2012 also had 32 IPOs). The number of IPOs in the first half of the year was 39, which represented the slowest start to a year in terms of IPO volume since 2009; when 16 firms went public during the first two quarters.
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Gross proceeds (including over-allotment) from initial public offerings declined 59% year-over-year in Q2 to $5.7 billion. Similar to IPO volume, gross proceeds from initial public offerings in the first half of 2016 ($6.4 billion) marked the lowest total since the first two quarters of 2009, when gross proceeds amounted to $2.9 billion.
During the second quarter, 13 companies postponed or withdrew their initial public offerings, which was four less than the year-ago quarter.
Looking forward, there are 32 companies that have released initial preliminary filings in the second quarter of 2016. This excludes offerings that have been postponed or withdrawn. This quarterly count represents a 57.3% decline from the year-ago quarter. Of the 32 companies, 11 have already priced and 21 are in registration.
Health Technology Sector Dominates IPO Volume
Of the 32 initial public offerings in Q2, 11 came from the Health Technology sector, which was the highest representation of any group. The second quarter marked the 10th consecutive quarter that the Health Technology group led all FactSet sectors in IPO volume. At the industry level, five of the Health Technology IPOs came from the Major Pharmaceuticals industry and four came from the Biotechnology industry. These two industries also dominated the IPO activity in Q1, with all seven of the initial public offerings during the quarter originating there.
IPOs – Biotechnology Drives Growth in Health Technology Offerings
The Biotechnology industry has been the primary driver of growth in IPO volume over the past few years. From 2013 to 2015, the Biotechnology industry has seen more companies going public than any other industry (2015: 41, 2014: 59, 2013: 32), In fact, no other industry has even come close to matching its IPO volume. The S&P 500 Biotechnology industry has gained 106% in value from the start of 2013 through Q2 2016, which was more than double the percentage gain posted by the S&P 500 index over the same time frame.
More recently, however, these firms have struggled. In the trailing 12 months ending in Q2, the S&P 500 Biotechnology industry was down 19.2%, while the S&P 500 index gained 1.7%. It will be interesting to see if this dip in performance leads to fewer Biotechnology firms entering the public market in the future.
IPO Activity Slows in Technology Services Sector
The Technology Services sector has historically been one of the major players in the IPO market in terms of both volume and aggregate gross proceeds. This has not been the case in 2016. In the first two quarters of 2016, IPO activity in the sector has essentially been non-existent. Only three initial public offerings came from the Technology Services group in the first half of the year, and all in Q2. Additionally, the gross proceeds from these offering have been fairly small. Twilio, a cloud communications platform, was the most anticipated out of the group and had the largest offering with $150 million raised in gross proceeds. This was well-below last year’s average amount of gross proceeds from an IPO in the Technology Services sector (2015: $341 million).
The slowdown in technology companies entering the public market started last year. In 2015, the number of initial public offerings in the Technology Services sector (18 IPOs) hit its lowest count since 2009 (9 IPOs). The Electronic Technology sector experienced the same trend. In 2015, only four firms in the sector went public, which marked the lowest annual IPO count since 2009, when just three firms from the Electronic Technology group went public.
Looking ahead, there should be an uptick in technology IPOs in the second half of the year. During Q2, four companies in the Technology Services sector (AgEagle Aerial Systems, LINE Corp, Talend SA, and Atomera) and three companies in the Electronic Technology sector (Impinj, Blue Coat, and Full Spectrum) released initial preliminary filings and are currently in registration.
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