Further Musings on the US IPO Backlog

My colleague Scott Cutler recently sent out an analysis the NYSE performed looking at the US IPO backlog, conversion rates and correlation to the VIX called "Highest IPO Backlog in a Decade: How and When It Will Convert." He ended his piece with “I don’t think the return is too far around the corner.” This topic has proven to be quite interesting to our community so we offer the following additional analyses.

How Big is the IPO Backlog, Really?  (Aren’t There Some Stale Filings In It?)

The chart below shows the US IPO Backlog over the last 10 years, with some adjustments. The top blue line is the total backlog of filed IPOs. The purple line is the backlog adjusted to remove filings over 2 years old, on a rolling basis. Finally, the blue-grey line is the backlog adjusted to remove filings over 1 year old, also on a rolling basis.

Some simple observations:

  • Even excluding filings over 2 years old, we are still close to the highest backlog over a 10 year period
  • 2 year period backlog at end of Q3 2007: 260 vs. 2 year period backlog at end of Q3 2011: 255
  • The median backlog size is 162 (1 year look-back period) to 178 (2 year look-back period);  either way, the current backlog size is significantly higher than the historical median of this past decade
  • Is the “spread” between the 1- and 2-yr lookback period lines getting larger since 2008?  This could be consistent with the notion that some companies are starting to remain filed in the backlog for longer periods of time, post the most recent financial downturn.

Has 2011 Been a Good Year for IPOs or Not?

This chart shows the number of US IPOs every quarter for the past 10 years; over this time period, the median number of IPOs has been 46 per quarter, or approximately 184 per year.

So far, 2011 seems to be on track for a “normal” year in terms of total number of IPOs, but the quarterly pattern was a strong Q1, a very strong Q2 (62 IPOs), and a rather weak Q3. What will Q4 bring? Will the volatility in the capital markets moderate and will there be more certainty out of Europe? A month ago it was looking rather bleak in the new issue market.  No one knows for sure of course, but signs of return and increased IPO activity are already starting to appear. I think we may be rounding that corner.