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IPO Market Shifts to Growth: 1Q10 Global Review
Analyst IPO Blog
With 100 deals and $45 billion in proceeds raised, the 1Q10 was the second best quarter for
issuance since the end of 2007. More importantly, signals of increasing risk appetite suggest that the market may be at an inflection point. We believe that the composition of the
is undergoing an important shift that has implications for both future issuance and the global economic outlook. Continuing a trend from late 2009, mature companies in cyclical industries dominated early first quarter deal flow, and investor sensitivity to valuations caused performance to suffer. However, with the number of global tech deals doubling from the 4Q09 and US venture-backed companies beginning to see daylight, we could be witnessing the revival of the IPO market's traditional growth sectors.
1Q 2010 global IPO issuance soars relative to a depressed 1Q 2009
Quarterly tallies of 100 deals and $45 billion in proceeds are light years ahead of those from the turbulent 1Q09, which saw only two IPOs raise a combined $0.9 billion in proceeds. Looking back to a more normalized market for context, the 1Q10 matched the 1Q07 in deal activity (100 versus 100) and exceeded the 1Q07 in terms of total proceeds raised ($45b versus $32b). Additionally, the 1Q07 represented only 18% of full-year 2007 deals and 13% of proceeds, suggesting that the
could get busier in the remainder of 2010.
China dominates deal flow; pulls up global performance
China led all markets in terms of deal flow for the third consecutive quarter, with 39 companies going public. However, it barely edged Japan on a total proceeds basis ($12.3 billion versus $11.4 billion), with leading Japanese insurance company Dai-ichi Life raising $11.0 billion in the largest global IPO since Visa. The average IPO returned 23.8% from its offer price, down slightly from 24.3% in the 4Q09. The median IPO return was 14.5%, with nearly three quarters of IPOs trading above their IPO prices. Overall, China-traded IPOs bolstered global returns with a blistering 44.8% average rise, and Shanghai accounted for 15 of the top 20 global performers. Specifically, five of the top 10 performers were China-traded tech companies; this group produced an impressive 111.8% average return. Not surprisingly, Asia Pacific was the top performing region with a 34.8% average return, while North America, Europe and Latin America lagged with 8.1%, 4.8% and 4.7% average gains, respectively. The top US performer, technology-enabled portfolio advisor Financial Engines (
), was the only North American deal in the top 20, with a 40.8% return from its offer price.
An Inflection Point in the US Market?
On a year-over-year basis, the number of US deals increased sharply to 27, though proceeds were up only four-fold as a result of the $720 million Bristol Myers Squibb carve-out of baby nutrition company Mead Johnson Nutrition (
) in the prior period. By comparison, the largest 1Q10 US deal was the $570 million offering of sensor and controls maker Sensata Technologies (
), and the average deal size declined to $162 million (down 60% from the 4Q) driven by a March surge in deals from smaller cap growth IPOs.
The largest US deals come from mature industries
In a continuation of a 2009 trend, private equity firms were behind three of the five largest US deals in the 1Q10, including Sensata Technologies, life insurer Symetra Financial and standby generator manufacturer Generac Holdings. Overall,
private equity-backed IPOs
represented 37% of proceeds raised in the first quarter of 2010, up from 30% for the full year 2009. Rounding out the top five were Primerica (
), a carve-out of Citi's life insurance business that priced on March 31, and Crude Carriers (
), a newly-formed shipping company.
Venture Capital Springs to Life in March
The US IPO market brought more positive signals as we moved into March. With Euro-zone debt concerns easing and the Fed renewing its commitment to record low interest rates, upward momentum in the broader market supported an increase in deal flow, particularly from the small cap tech and biotech sectors. On average, first day returns improved to 11.7% versus a -1.5% loss in January and February. Despite the shorter horizon, deals priced in March have returned 9.7%, versus 4.3% for earlier 1Q10 deals, and represent three of the quarter's top five gainers.
March also saw a welcome uptick in
venture capital-backed IPOs
(5), driving the highest quarterly total (9) since the end of 2007. These deals vastly outperformed their non-venture peers with a first day pop of 14.3% (versus -0.1%) and total return of 14.8% (versus 2.9%). Interestingly, this group included the largest biotech IPO since 2002 in Ironwood (
), and offerings from sectors that had been dormant since 2007, including fabless chip designed MaxLinear (
) and telecom equipment vendor Calix (
). The strong performance for these three deals suggests that US IPO investors are moving further out on the risk spectrum.
With the uptick in venture-backed activity and solid
, it is not surprising to see continued momentum in new filings from growth sectors. Growth-oriented technology and healthcare companies currently represent a quarter of prospective IPOs in the pipeline, and venture-backed companies accounted for 38% of new IPO filings in the 1Q10. While stable companies in mature industries continue to drive global issuance, performance is increasingly favoring the smaller and faster-growing companies that have historically been the engine of the IPO market. Particularly in the US, improving liquidity in the venture channel suggests that
, are looking beyond the deleveraging phase of the global recovery and toward the next sources of economic growth.
Note: All global statistics include IPOs that raised over $100 million in gross proceeds. US market statistics include IPOs with a proposed market cap above $50 million and exclude closed-end funds. Visit
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