Full Steam Ahead for Larger IPOs


Priced_IPOs

 

Source: Bloomberg LP, as of October 9, 2018

 

*Data is for priced initial public offerings of ≥ $1 million, listed on a U.S. stock exchange during the time period indicated.

 
More Deals and More Cash per Deal in 2018

The 2018 numbers are indicating a trend towards increasing IPO activity that is likely to continue into 2019. In the first three quarters of 2018, issuers priced 209 IPOs and raised $53.26 billion, surpassing $52.22 billion raised in 2017. The year started off slow in the first quarter, but as a result of a less volatile economic and political environment and rising interest rates (which effected the availability of cheap debt) in the second and third quarters, issuers stepped up their IPO game, and 2018 is promising to exceed 260 deals.

The average IPO size has also increased this year, likely reflecting lack of issuer interest to go through with the IPO process unless the amount of funds raised is significant enough to cover the IPO costs and generate sufficient cash. In the first three quarters of 2018 the average deal size reached $254.9 million, up by 14 percent from $224.1 million in 2017 and by 37 percent from $185.5 million in 2016. The Staff of the U.S. Securities and Exchange Commission have on numerous occasions expressed concern over waning number of U.S. public companies and the expenses of the IPO process, but the costs of the IPO process and subsequent public company periodic reporting requirements have not decreased. 

The three largest IPOs of the first half of 2018 were by: AXA Equitable Holdings Inc. (priced on May 9 and raised $3.16 billion), Pagseguro Digital Ltd. (priced on January 23 and raised $2.61 billion) and iQIYI Inc. (priced on March 29 and raised $2.42 billion). The largest IPO of the third quarter was by Elanco Animal Health Inc. (priced on September 19 and raised $1.74 billion).

 
Record Number of Effective IPOs Likely in 2018

record_number_2018

Source: Bloomberg LP, as of October 17, 2018

 

*Data is for initial public offerings of ≥ $1 million, announced during the time period indicated and proposed to be listed on a U.S. stock exchange.

 

Looking at IPO activity in the last decade, 2011 and 2012 saw a larger percentage of withdrawn IPOs (44 percent and 39 percent respectively) while 2013 and 2014 were the years with the highest percentages of IPOs that reached the trading stage (75 percent and 71 percent). Breaking records, 2017 seems to be the most effective year for IPOs over the last decade, with 76 percent of the IPOs announced in that year already trading on the market despite 19 percent still in the pending stage. Only 4 percent of IPOs announced in 2017 have been withdrawn as of October 17, a much smaller percentage than in all previous years going back to 2009. 

Despite record numbers in 2017, if the trend of the first three quarters of 2018 continues until the end of the year, 2018 will be the best year in the last decade in terms of effective IPOs. Sixty five percent of 2018-announced IPOs have already reached the trading stage, 31 percent are still pending and only 2 percent have been withdrawn as of October 17. The trends over the last two years indicate a greater efficiency in the IPO market with a larger percentage of launched IPOs culminating in trading, most likely due to three factors: (1) lager percentage of issuers taking advantage of the testing-the-waters option introduced by the JOBs Act; (2) issuers and advisers doing a better job preparing the company for the IPO; and (3) issuers exploring and using other available exit options (e.g. mergers, private offerings, additional seed rounds) in lieu of the IPO process.

 

Tech is Still Behind
Tech_Behind

Source: Bloomberg LP, as of October 9, 2018

 

*Data is for priced initial public offerings of ≥ $1 million, listed on a U.S. stock exchange during the time period indicated.

 

In the three quarters of 2018, the Diversified sector continued the trend from 2017, replacing the Technology sector among the top three sectors by number of IPOs (32 IPOs). The Technology sector delivered 21 IPOs in 2015 and 16 IPOs in 2016, but was not in the top three sectors, by number of IPOs in either 2017 or the first three quarters of 2018. The Consumer, Non-Cyclical sector was the most active with 76 IPOs, and, as in the previous four years, outperformed the other industry sectors by number of IPOs.

The top IPOs by dollar value in each of the three top sectors in the first three quarters of 2018 were by: Elanco Animal Health Inc. (Consumer, Non-Cyclical sector, priced on September 19 and raised $1.74 billion), GS Acquisition Holdings Corp. and Churchill Capital Corp. (Diversified sector, priced on June 7 and September 6, respectively, and raised $690 million each) and AXA Equitable Holdings Inc. (Financial sector, priced on May 9 and raised $3.16 billion).

Top3_DlValu

Source: Bloomberg LP, as of October 9, 2018

 

*Data is for priced initial public offerings of ≥ $1 million, listed on a U.S. stock exchange during the time period indicated.

 

In the first three quarters of 2018, the Financial sector continued the trend from the previous two years and raised the most capital ($12.4 billion). The Consumer, Non-Cyclical sector and the Diversified sector also did well and raised $9.8 billion and $7.9 billion respectively. 

The top IPOs by deal value in each of the three top sectors in the first three quarters of 2018 were by: AXA Equitable Holdings Inc. (Financial sector, priced on May 9 and raised $3.16 billion), Elanco Animal Health Inc. (Consumer, Non-Cyclical sector, priced on September 19 and raised $1.74 billion), and GS Acquisition Holdings Corp. and Churchill Capital Corp. (Diversified sector, priced on June 7 and September 6, respectively, and raised $690 million each).

 

Big Money, Big Money: Smaller IPOs are Toast
IPO_size_count

 Source: Bloomberg LP, as of October 9, 2018

 

*Data is for priced initial public offerings of ≥ $1 million, listed on a U.S. stock exchange during the time period indicated.

 

Continuing the trend from 2017, in the first three quarters of 2018, IPOs in the $1 - 100 million range represented a smaller percentage of total priced IPOs (40 percent), compared with the previous three years. This indicates a trend toward fewer IPOs in the smallest IPO dollar range, which is likely due to: (1) high costs of the IPO process and subsequent public company periodic reporting burdens; (2) ready availability of alternate financing methods (e.g. private financing via exempt offerings or multiples seed rounds); and (3) the ability to promote the brand via social media. 

In 2017 and in the first three quarters of 2018, there was a sizable increase, compared with the previous three years, in the percentage of IPOs in the $100 - $500 million range. The first three quarters of 2018 also witnessed a significant increase in the percentage of IPOs in the $500 million - $1 billion range (9% of all IPOs), a larger percentage than in the previous four years. All this indicates a continuing trend toward larger IPOs.

 

SPAC IPOs are Aiming High
SPAC_IPO 

 Source: Bloomberg LP, as of October 9, 2018

 

*Data is for priced initial public offerings of ≥ $1 million, conducted by special purpose acquisition companies (SPACs) and listed on a U.S. stock exchange during the time period indicated. A SPAC is a type of blank check company that pools funds to finance M&A transactions.

 

Thirty-two SPAC IPOs priced in the first three quarters of 2018 and raised a total of $7.65 billion, on target to exceed even the peak numbers of 2017. SPAC IPOs have been on an upward trend since 2009 in both deal count and dollar amount raised. The dollar amount raised by SPAC IPOs in 2017 ($9.84 billion) jumped by 183 percent from 2016 ($3.48 billion) and by 152 percent from 2015 ($3.90 billion). 

The average deal size of SPAC IPOs was $239 million in the first three quarters of 2018 and $308 million in 2017. In the first three quarters of 2018, SPAC IPOs represented 15 percent of the total IPO market by deal count and 14 percent of the total IPO market by dollar amount raised. 

The three largest SPAC IPOs in the first three quarters of 2018 were by: GS Acquisition Holdings Corp. (priced on June 7 and raised $690 million), Churchill Capital Corp. (priced on September 6 and raised $690 million) and Far Point Acquisition Corp. (priced on June 11 and raised $633 million). 

Skadden, Paul Weiss and Ellenoff Grossman represented the issuers in the top three SPAC IPOs of 2018 and Freshfields, Winston & Strawn and Skadden represented the underwriters. 

With additional data analysis by Tom Shen. 

For more information on IPO performance, Bloomberg Law subscribers can access the Quarterly IPO Market Update in the Securities Practice Center