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IPO activity on US exchanges surged last year as billion dollar deals returned
04/07/2007. Source:PricewaterhouseCoopers.
 Fueled by the strongest fourth quarter for initial public offerings this decade, 2006 saw a 28 percent increase in total IPO proceeds compared to 2005, finds PricewaterhouseCoopers. Deal size increased dramatically with proceeds from the year's top 10 IPOs rising 58 percent in 2006, as eight of the 10 largest deals topped the billion dollar mark.
The number of IPOs rose 10 percent, from 221 in 2005 to 236 last year, and the average deal size hit a three-year high of $211.6 million compared to $177.0 million in 2005 and $199.7 million in 2004.
At $19.7 billion, fourth quarter IPO proceeds were double the average in the previous seven quarters. The largest US IPO last year was nearly twice the size of 2005's largest deal.
According to Scott Gehsmann, a Transaction Services Capital Markets partner, “IPO proceeds on US exchanges hit $50 billion in 2006, just $2 billion short of the decade's high set in 2004, and 28 percent above the $39 billion raised last year. Virtually all of this growth came from IPOs backed by financial sponsors including private equity firms. A diverse cross section of industry groups was represented.”
Despite their larger size, the top ten IPO's contributed only slightly more to total IPO proceeds in 2006 than in 2005, 27 percent compared with 22 percent. Even when the top ten deals of the year are excluded, the average value of an IPO in 2006 rose to $161.0 million after remaining virtually unchanged during the prior two years at $144.6 million and $146.4 million in 2005 and 2004, respectively.
The differentiating factor in 2006 was the range of industries represented in the top 10 IPOs: financial services (including real estate investment trusts or REITS), business services, energy, industrials, pharmaceuticals, leisure, and transportation. By contrast, in 2005, eight of the 10 largest IPOs were in two sectors: financial services and chemicals.
Other findings from the report are as follows:
Financial services, technology and healthcare were the most active sectors in the market, whereas financial services, energy and industrial products raised the most equity. Almost all sectors raised more capital than in 2005. As in prior years, financial services, technology and healthcare saw the greatest volume of IPO activity.
The energy sector experienced the greatest increase in both volume and value as higher energy prices provided support to IPOs from both traditional and renewable energy companies. The broad financial services, energy and industrial sectors led the pack in terms of proceeds raised, followed by technology and transportation.
Financial sponsors backed 60% of the IPOs on US markets. Financial sponsors, which include venture capital, buyout, mezzanine and private equity funds, drove the increase in IPO activity between 2005 and 2006. Financial investor-backed IPOs raised $30.2 billion in 2006, up 64 percent from $18.4 billion in 2005.
AMEX took some market share from the NYSE and NASDAQ, especially on mid-sized deals, but historic value and volume trends remain. The AMEX has grown steadily in the past few years, with volume up 78 percent, proceeds up 49 percent and median deal size tripling in 2006 compared with 2005. The two largest US exchanges—the NYSE and the NASDAQ—saw similar levels of IPO activity in 2006 compared with the prior year.
The pattern followed historical trends with the NASDAQ once again the leader in IPO volume and the NYSE the leader in proceeds. Proceeds rose more than 25 percent on both exchanges. Median deal size on the NYSE rose 54 percent to $371 million, its highest level since 2001, while median deal size on the NASDAQ and AMEX set new records for this decade at $93 and $69 million, respectively.
The globalization of the world's capital markets continues, with more money raised in Europe and China. European exchanges raised $82 billion from 653 listings, compared with $50 billion from 236 US IPOs. However, the average offering value in Europe was, again, lower than in the US: $145.7 million versus $211.6 million.
London remained Europe's leading market in terms of both IPO volume and offering value, widening its lead over the Euronext, Europe's second largest exchange. Proceeds from IPOs on London exchanges rose 60 percent to $37.4 billion last year, giving London 45 percent of total proceeds on European markets, up from 36 percent in 2005.
2006 was also a strong year for the Greater China IPO markets, where 140 IPOs raised a record $62 billion, exceeding proceeds raised on US exchanges by $12 billion. Average deal size rose 71 percent to $444 million, as large mainland Chinese companies sought Hong Kong listings, and activity on the Shanghai and Shenzhen exchanges soared after the government ended its year- long share segregation reform.
"With 64 IPOs raising $12.1 billion during the first quarter, 2007 is off to a strong start," Gehsmann observed. These numbers compare favorably with $11.9 billion from 56 IPOs in 2006, and $10.8 billion from 43 listings in 2005. "Activity in the financial services sectors should remain strong and certain technology sectors will pick up. Private equity sponsors will bring a significant number of new companies to the market as they begin exiting some of the nearly $700 billion in acquisitions they've made in the past two years. Absent a significant equity market decline, we expect 2007 to be a stronger year for US IPOs than 2006," Gehsmann added.
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, 2006 and December 31, 2006. Visit our website, www.pwc.com/ustransactionservices, for our 2005 and 2006 US IPO Watch reports.
PricewaterhouseCoopers (http://www.pwc.com/) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 130,000 people in 148 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.
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