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U.S. IPO Activity Continues to Lag With a 20% Drop in Total Number of Q2 IPOs Year Over Year


7/1/15

Despite Drop, IPO Engine Demonstrates Signs of Improvement Since Q1 2015

Healthcare and Life Sciences Represent 43% of All Middle Market Activity

New York – Following a marked decrease in the number of initial public offerings (IPOs) in the United States in Q1 2015, Q2 IPO activity continued to lag, dropping 20% over the same period in 2014, according to new research conducted by CohnReznick LLP, a top accounting, tax, and advisory firm serving the middle market. Sixty-nine companies priced in Q2 2015, compared to 86 in Q2 2014.

Although still behind 2014’s IPO pace, the data revealed a slight improvement compared to Q1 2015, which saw a 46% drop in IPO activity compared to 2014.

Based on trends in the first half of the year, the U.S. will be on track to tally 208 IPOs at the end of 2015, compared to 307 IPOs at the end of 2014 and 255 IPOs at the end of 2013.

“The data confirms what we are seeing in the market. Companies do not need to complete the public offering process to raise capital,” said Alex Castelli, partner and co-leader of CohnReznick’s National Liquidity and Capital Formation Advisory Group. “We believe that those companies that may have been IPO candidates in the past have become investment targets of financial investors like private equity groups, as well as acquisition targets for strategic investors. With valuations in the private market so high, companies are less motivated to pursue an IPO.”

Top findings of the report include:

  • While the number of IPOs decreased in Q2 2015, the average amount of proceeds per middle market transaction increased by 39% in Q2 2015 when comparing to Q2 2014. In Q2 2015, the average proceeds per IPO were $136 million. In Q2 2014, the average proceeds per IPO were $98 million.
  • Middle market (companies with market caps between $10 million and $2 billion post IPO) IPO activity, a bell-weather for broader economic growth, decreased by 12% in Q2 2015 in comparison to Q2 2014. Middle market IPO activity was down 30% through the first half of the year.
  • The number of small IPOs (proceeds below $50 million) in Q2 2015 was somewhat consistent (15%) with the number of small IPOs in Q2 2014 (17%). 96% of middle market IPO issuers registered as Emerging Growth Companies to avail themselves to the various provisions of the JOBS Act (92% in Q2 2014).
  • When comparing the first half of 2015 to 2014, 109 IPOs priced, marking a 32% decline in companies going public.
     

“While less IPO activity occurred this quarter, the average amount of proceeds per transaction increased,” Castelli said. “Most companies that chose to move forward with the IPO process this quarter have received a warm welcome from investors which is an indicator of the investment community’s continued interest and confidence in new issues.”

Findings specific to industry sectors include:

  • Activity in the healthcare and life sciences sectors was consistent when comparing Q2 2015 and 2014, and represented 43% of all middle market IPO activity compared to 38% in Q2 2014.
  • IPO activity in the middle market technology sector stalled with just eight companies going public in Q2 2015 compared to 16 in Q2 2014. This represents a decline of 50% from year to year.
  • Three companies priced in each the retail and hospitality sectors compared to two companies during the same period last year.
  • Real estate remained consistent over the same period in 2014.
     

The full study and research will be released later this month and will be available at www.cohnreznick.com/capitalformation.

 

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