IPO Market Off to Slowest Start Since 2009
The new issue market saw only 11 IPOs in the entire first quarter of 2016 with not a single company going public in January, making it the slowest start to the year since 2009. Neil Dhar, U.S. Capital Markets Leader for PwC, said the second quarter will be better, but only by comparison.
"On a relative basis the second quarter is looking more optimistic than the first three months of the year, but we have only seen less than 20 IPOs through early May so the new issue market is still taking a breather," said Dhar.
According to Dhar, IPO activity in Q1 declined 70% sequentially from Q4 2015 which saw 37 IPOs and 73% from the 40 IPOs seen in Q1 2015. In addition, the $1.2 billion in total proceeds raised in Q1 represented declines of 83% and 80% compared to $7.2 billion in Q4 2015 and $6.1 billion in Q1 2015.
"Market volatility in Q1 shaped a negative impact on IPOs," said Dhar. "Investors got passive about putting money into equities and IPOs in particular."
Volatility also impacted the follow-on (FO) market early in the quarter, according to PwC, but March saw a turnaround as the number of issuances spiked to 57, bringing total Q1 2016 issuances to 108 raising $31.8 billion. However, the FO market was still down on a year-over-year basis, with sharp declines in both volume and value, down 57% and 54%, respectively, compared to Q1 2015 which saw 253 issuances raising $68.8 billion.
On a sector basis, the crop of new issues thus far this year has predominantly been health care and Special Purpose Acquisition Companies (SPAC), although that loosened up in April with the introductions of SecureWorks (SCWX) - Get Report and MGM Growth Properties (MGP) - Get Report to the market.
According to Dhar, the breadth of the IPO market will improve materially in Q2 2016 beyond SPACs and biotech offerings. He said it will most likely be driven by profitable companies as bankers look for more defensive stories and management teams with a realistic view on valuation.
