This has been the most active year for initial public offering since 2000, with 222 IPOs in the United States raising proceeds of more than $59 billion, Ernst & Young reported. And with 76 deals in in the pipeline at the end of the fourth quarter, the IPO market is expected to roll into 2014 with a full head of steam.
“I like to call it the perfect storm,” says Jackie Kelley, Americas IPO leader for EY. The economy is getting better, employment is improving and companies are growing. In addition, stock-market volatility was low, which encouraged companies to go public. The VIX, the Chicago Board Options Exchange Market Volatility Index, was at a low level, below 20, for most of the year, notes Tim Keating, CEO of Keating Capital, which specializes in pre-IPO investments.
It’s hard to imagine better market conditions for IPOs than existed in 2013. “This was planetary alignment of everything working right,” Keating says.
The number of IPOs increased 67 percent, from 133 in 2012 to 222 in 2013, according to the EY report. There were 67 IPOs in the fourth quarter, more than double the count in 2012, when the financial markets were transfixed by the battle over the “fiscal cliff.” Proceeds rose 171 percent year-over-year.
Although the IPOs of high-profile companies, such as Twitter, dominated the news, it was health care that had the best year, with 54 IPOs in 2013. Of those, 36 were in bio-tech, where companies raised $2.5 billion in gross proceeds, according to Keating.
The health-care industry hadn’t had such access to capital markets for a long time, but now it has the opportunity to take advantage of a strong market. Additionally, approvals were running through the Food and Drug Administration pipeline more smoothly in 2013. “When investors saw a combination of progress with the FDA and IPOs working out so well, that’s really all it took,” Keating says.
Rounding out the top five sectors by number of IPOs in 2013 were technology, energy and power, real estate and financial services, according to EY.
Private-equity firms are no longer sitting on the sidelines either. Forty-two percent of IPOs were private-equity backed this year, says Kelley. According to EY, 94 private-equity-backed IPOs were valued at $32.8 billion, compared with 94 deals with proceeds of $20.3 billion during 2007, the peak year for such IPOs.
The IPO boom was also helped by the Jumpstart Our Business Startups (JOBS) Act, which made it easier for emerging growth companies with under $1 billion in revenue to submit and file confidentially with the Securities and Exchange Commission. That allowed companies to “remain in stealth mode” without having competitors “pick apart a filer’s information” before its shares started trading, Keating says.
But some companies struggled despite the ideal conditions. Violin Memory, the maker of flash storage, had one of the worst IPOs of 2013, says Keating. Shares were priced at $9 for its debut on Sept. 26. As of early Friday afternoon, the share price was down to just under $4.
Keating’s prediction for 2014: more of the same. “We see absolutely nothing that will change the velocity or pace of IPO issuance,” he says, adding this year’s IPO market is not a bubble but a “welcome recovery.”
Image courtesy of Fides Invest Care via Creative Commons.