IPO Market

Law firm Proskauer released its 2015 IPO study on Tuesday. The firm’s capital markets group analyzed 119 U.S. listed IPOs that priced in 2014, a blockbuster year for companies to go public. The minimum deal size was $50 million.

Here are the firm’s main findings:

Less financial information. It was a year of large deals, with 16 IPOs raising at least $1 billion. But small companies did not miss out. Seventy-six percent of issuers filed as emerging growth companies (EGCs) under the Jumpstart Our Business Startups (JOBS) Act, about even with 2013. “EGCs appeared to be increasingly comfortable in taking advantage of the accommodations permitted by the JOBS Act,” Proskauer said.

[contextly_sidebar id=”mXMPyoHp7EiQNPUToAnZ5r9WdLsmL2ua”]For example, all EGCs elected to confidentially submit a registration statement, up from 88% in 2013. Fifty-eight percent of EGCs provided two years of audited financial statements, as allowed under the JOBS Act, instead of the traditional three years. In addition, 80% “provided less than five years of selected financial information in 2014, instead of the five years required for non-EGCs.”

Better at the process. Companies filed S-1s that were slightly cleaner than last year, speeding up the average time to price a deal. The average number of first round Securities and Exchange Commission comments in 2014 was 38, down from 42 in 2013, Proskauer said. The average time period between a first filing and an IPO pricing was 124 days, down from 135 in 2013.

Early birds. Ten percent of the IPOs Proskauer studied were for pre-revenue companies in the healthcare sector. A greater number of filers, 55%, reported negative net income in their most recent audited fiscal year. “While a majority of companies in each category priced below the range, pre-revenue issuers had significantly better aftermarket performance than those in the study with negative net income,” Proskauer said.

Material weaknesses. Material weaknesses in internal controls over financial reporting jumped. Thirty percent of filers disclosed such a weakness, up from 17% in 2013. There were also 7% of issuers carrying a going-concern qualification and 8% that had restated financials.

Insider buying. “Aftermarket performance for deals with insiders buying was much better than for those without insiders buying,” said Proskauer. Insiders bought shares in 24% of the study’s IPOs, mostly in health care. However, “the opposite was true when management sold shares in IPOs with a secondary component. Nearly 60% of such deals priced above the range, but aftermarket performance was meaningfully lower than when management didn’t sell,” the firm said.

Dwindling risk appetite? In what could be a harbinger for 2015, IPOs struggled to price in their price range in the second half of 2014. Forty-five percent of second-half deals priced below the range, compared with 25% in the first half. “Second-half deals also generally underperformed first-half deals in the aftermarket,” said Proskauer.

So far in 2015, IPOs of U.S. companies are down, with 27 deals launching as of March 17, compared with 45 last year, according to IPO ETF manager Renaissance Capital. Proceeds have also fallen. The $4.4 billion raised so far is more than 40% off last year’s pace of $7.6 billion.

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