IPO Momentum Builds as Global Markets Rebound

We’ve just notched a strong first quarter for the US IPO market and that’s in direct contrast to much of the world.  More on the US in a moment, but at the global level the first quarter was behind last year by nearly 50% in number of deals and those deals only raised about 25% of last year’s proceeds. Europe in particular has struggled with $3 billion raised across 18 listings. The silver lining is the momentum has steadily increased each month, with $1.9 billion raised in January, $5.1 billion raised in February, and $10.4 billion in March. Hopefully, this trend continues in the second quarter as global markets continue to recover and IPO investor demand increases. We’ve just seen Ziggo go out in Amsterdam and perform extremely well so there is some evidence that there is reason for hope!

The US IPO market has strengthened significantly over the past quarter as well, especially as the Russell 2000 has risen nearly 12% in 2012 so far. Combine that with a 12 month low in the VIX and you have a recipe for a risk-on trading environment and an increased appetite for IPOs.  Importantly, the IPOs looked at as an asset class have performed well with a median return of 11.1%. In the first quarter the US has seen 48 IPOs raise $6.9 billion in proceeds (versus 43 raising $15.6 billion in 2011), with most of those being VC-backed as opposed to PE-backed in 2011. A large concentration of deals coming from tech (40%) has recently been buttressed by some diversity of industry with consumer, industrial, materials and E&P. We still haven’t seen much diversity in geography with one company from Europe and one from China listing in the US.

  Year-Over-Year Q1 US IPO Comparisons  
  2012 2011
Number of Deals 48 43
Total Proceeds Raised $6.9B $15.6B
Median Deal Size $94.3mm $113.0mm
Median Market Cap at Listing $357.4mm $258.2mm

Top performers this year include Guidewire Software (up 153% from offer), Proto Labs (up 103% from offer), Demandware (up 57% from offer) and Yelp (up 55% from offer). We have seen rational pricing accompany this increased IPO demand from investors, with 21% pricing above the range, 40% within the range and the rest below. Investor sentiment and valuation have come in line and deals are now pricing well. This leads us to believe that the IPO market, while strong, is not overly exuberant, which is a good sign for the US IPO market moving forward.

Looking into the second quarter, we expect to continue to see companies launch and price as they will seek to hit IPO windows using full year financials prior to the Memorial Day and 4th of July holidays. Only time will tell if there is prolonged IPO momentum, but if US economic data remains positive and fears on Europe and China continue to subside, we could be in for a strong second quarter!

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