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US IPOs surging15/08/2007. Source: PricewaterhouseCoopers.
 IPOs on US exchanges enjoy their best first quarter since 2000, with financial services and technology leading the way, finds PricewaterhouseCoopers. Building on a record fourth quarter, US IPO activity during the traditionally quiet first quarter hit a seven year high in terms of both volume and proceeds, with $12.1bn raised through 64 IPOs, up from $11.6bn from 54 IPOs in Q1 2006, but down from $19.7bn from 89 IPOs during Q4 2006.
Average deal size has fallen to $190 million from $216 million and $221 million during Q1 and Q4 2006, respectively.
“2007 is off to a strong start," said Scott Gehsmann, a capital markets partner in PricewaterhouseCoopers' Transaction Services group. "As we expected, the financial services and technology sectors were much more active than in Q1 2006, and financial sponsors continued to be a major factor in the market, backing 40 percent of all IPOs and raising 55 percent of proceeds," Gehsmann added.
The five largest first quarter deals accounted for 34 percent of proceeds raised, about the same contribution as in Q4 and Q1 2006 (32 and 36 percent, respectively.)
Among the top ten deals, three were in financial services, three in communications, two in real estate and construction, and one each in energy and business services. This is in sharp contrast to last year when there were no financial services IPOs and four energy IPOs among the top ten.
First quarter (Q1) 2007 saw greater industry concentration among IPOs than Q1 2006, with the top three sectors accounting for 70 percent of volume and 73 percent of proceeds, up from 46 percent of volume and 61 percent of proceeds in Q1 2006. Financial services and technology—historically the two most dominant IPO sectors—regained strength during Q1 2007.
Financial services comes back.
Continuing a trend that began in Q3 2006, financial services led other industry sectors, accounting for 36 percent of IPO volume and 43 percent of proceeds, or $5.2 billion. This stands in sharp contrast to Q1 2006 when financial services IPOs constituted only 13 percent of IPO volume and 6 percent of value. Three of the quarter's largest issuers—CurrencyShares Japanese Yen Trust, Fortress Investment Group, and Employers Holdings Inc.—were in this sector. Fifteen of the industry's 23 IPOs are characterized as "other" financial services, including 10 special purpose acquisition vehicles or "blank check" companies, which raised $952 million on the AMEX.
Technology and communications IPOs up sharply.
Twelve technology and communications IPOs raised $2.4 billion in Q1 2007 compared with eight IPOs raising $1.6 billion in Q1 2006. Six communication deals raised $1.7 billion this quarter, while four semiconductor deals raised $614 million.
Financial sponsor-backed IPOs continued to show strength.
Twenty-six of the 64 IPOs this quarter were backed by financial sponsors, up from 11 in Q1 2006. These IPOs raised $6.6 billion or 55 percent of total proceeds, compared with $2.1 billion during Q1 2006. Financial sponsors backed five of the ten largest IPOs, four of five business services IPOs, eight of twelve technology IPOs, and six of ten healthcare IPOs. Issues backed by financial sponsors continued to be larger than those with other types of sponsors averaging $252 million, compared with $145 million.
Foreign issuers less active.
Foreign registrants raised $1.8 billion on US exchanges in the first quarter, or 15 percent of proceeds, down from $2.8 billion, or 24 percent, in the same quarter last year. There were three IPOs from China, two each from Greece and Israel, and one each from Brazil and the Philippines. Three of the top 10 IPOs last quarter were foreign registrants, compared with four during Q1 2006.
NASDAQ takes the lead in IPO value as well as volume.
Long the leader in IPO volume, the NASDAQ surpassed the NYSE in proceeds raised for the first time in at least three years. The NASDAQ raised $6.0 billion from 39 IPOs, compared with $4.7 billion raised from 11 IPOs on the NYSE and $1.4 billion from 14 IPOs on the AMEX. However, NYSE IPOs were far larger, averaging $430 million compared with $154 million on the NASDAQ and $101 million on the AMEX.
Activity on European markets declines.
IPOs on European exchanges raised $13.3 (€10.6) billion, down 15 percent from $15.6 (€12.4) billion during Q1 2006. Volume declined 16 percent year over year from 164 to 137 IPOs.
Although London remains Europe's premier IPO market with 43 percent of IPO volume and 81 percent of value, these numbers represent a sharp drop in volume and a slight decline in value compared with Q1 2006. London's decline is attributable to less activity on the AIM. Although London's Main Market saw fewer deals than last year—18 compared with 23—proceeds rose from $6.5 (€5.2) billion to $8.7 (€7.0) billion. The Main Market hosted Europe's five largest IPOs, including three billion-dollar deals: Smurfit Kappa, Sports Direct International, and 3i Infrastructure. Non-European companies accounted for 29 percent of London's proceeds.
While average proceeds from European IPOs remain significantly lower than in the US at $97 million versus $189 million, this is no longer true for London. The average size of an IPO on London's exchanges was $182 million last quarter, while the average for its Main Market was $485 million, which compares favorably with $430 million for IPOs on the NYSE.
Gehsmann views this as further evidence that the world's capital markets are becoming increasingly competitive, with more options available to companies seeking capital. Against this backdrop, Gehsmann is heartened by the US markets' strong first quarter showing, and the prospect of an even more robust second quarter. "We continue to believe 2007 will be a better year for IPOs than 2006, and possibly the best year of this decade. A strong IPO pipeline, continued activity by financial sponsors, and the resurgence in financial services and technology sectors are very positive signs."
US IPO Watch is a quarterly survey of all IPOs listed on US exchanges. These include IPOs by domestic and foreign companies, best-efforts, business development companies, filings with the FDIC, and bank demutualizations. IPOs do not include unit investment trusts and fully classified closed-end funds. This survey captures IPOs listed between January 1 and April 30, 2007. Visit our website, www.pwc.com/ustransactionservices
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