Q2 2016 Middle Market Equity Capital Report

Following a striking decrease in initial public offerings (IPOs) in the United States in Q1 2016, Q2 IPO activity displayed signs of life, but still lagged behind 2015 IPO figures.

Even though U.S. stock markets have achieved new highs, various market conditions continue to exert downward pressure on IPO activity. Britain’s decision to leave the European Union has already caused market instability and will likely continue to cause some disruption moving forward. Strategic buyers and corporate M&A have grabbed a lot of companies that historically would have been prime candidates to go public. In addition, the so-called “unicorns” are reluctant to access public capital due to uncertainty about valuations, creating a meaningful number of companies that are waiting in the wings. In Q2, Twilio’s IPO could be an encouraging sign to other private technology companies to go public and a hopeful indicator of what we might see in the second half of the year.

Today’s market conditions are unique. Investors are evaluating IPOs with a higher degree of scrutiny and heightened concern, business models on a go-forward basis are being challenged, private equity and venture capital remain plentiful (although cautious), and corporate investors seeking growth through mergers and acquisitions are paying premiums for companies they can integrate. Market fundamentals don’t appear to have changed. Well-managed companies with growing revenue and profits will continue to draw investor interest.

We hope you find the contents of our report to be informative and helpful as you consider sourcing capital.

To learn more about liquidity and capital formation issues, including additional reports on IPO activity, visit the CohnReznick Liquidity and Capital Formation Resource Center.