Risk

Pent-up IPO Supply Hitting the Market

Encouraged by favorable conditions in the stock market this quarter, U.S. companies are lining up to list.
Vincent RyanApril 8, 2013

Thanks to continued low volatility in the equity markets and pent-up deal supply, the pipeline of initial public offerings in the United States has grown substantially, and the number of companies that have priced their deals and are on the verge of actually trading in the markets is rising.

Twenty companies filed to go public the past three weeks, eight of which published their prospectuses the week ending April 5. That was the most prospectus filings since the week of March 19, 2012, according to Renaissance Capital, an IPO-focused research and investment management firm. An additional nine companies set pricing terms last week.

The heightened activity is the result of years of pent-up demand and supply, says Linda Killian, a principal with Renaissance Capital. The surge also stems from an easing in external pressures that virtually froze the IPO market from the financial crisis until 2011.

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“The external world seems to have stabilized somewhat, despite all the noise the Koreans are making, and though the risks in banking and finance have not been fully resolved they are largely known,” says Killian. 

Companies that have held off going public because they didn’t think they would get a good valuation are thus coming into the market again, she says. They are being welcomed by investors that are less risk averse and more open to new growth companies.

The IPO pipeline may be even bigger than public information shows, because companies are taking advantage of the Jumpstart Our Business Startups Act to file their prospectuses confidentially with the Securities and Exchange Commission. 

In the first quarter, 63% of all filers took advantage of this provision in the JOBS act, according to the first quarter IPO Watch from PwC. (They have to publicly disclose their filing later on, within 21 days of the start of their roadshow.) And seven of the eight companies that announced their deal publicly last week were initially confidential filers.

But Killian says the confidential filing provision and other terms of the JOBS Act are not driving any of the increased activity. “It’s had zero impact,” she says.

Overall, first-quarter IPOs returned an average of 16% from the date of their debut, outperforming the S&P 500, PwC notes. Shares of Independent Bank Group (IBTX), the first company to issue an IPO in the second quarter, are up 10% from their IPO price, while as of Monday afternoon the S&P 500 was in negative territory for this quarter.

IPOs are also performing well on their first day of trading. Twenty nine percent of IPOs priced above their range last quarter, up from 20% a year ago, according to PwC. And the average first-day “pop” of companies that listed was 12%.

Seven IPOs are expected to price this week, according to Renaissance Capital. The largest deal is from Taylor Morrison Home (TMHC), a homebuilder planning to raise $500 million by offering 23.8 million shares. Other expected pricings include EVERTEC (EVTC), a payment-transaction processor based in Puerto Rico and Chimerix (CMRX), a pharmaceutical firm developing an antiviral drug used in stem cell implants.

Two highly anticipated deals on the horizon are Tableau Software (DATA), a maker of data visualization tools, and Marketo (MKTO), a marketing software provider for business-to-business firms.

There were only seven new listings from high-tech companies in the the first quarter of 2013, but half of last week’s eight filings were high-growth technology deals, says Renaissance Capital.

“Once there are a number of successes [by high-tech firms], it will entice companies that are a little shy, says Killian.