US IPOs post modest gains in third quarter 2005

While IPO activity was comparable to Q3 '04, average deal size fell 35 percent, from $223.4 to $146.0 million, continuing a decline begun last quarter. CF Industries Holdings, the biggest transaction this quarter, raised $660 million, compared with five IPOs of a billion dollars or more during Q3 '04, led by Google.

Year-to-date, 2005 is shaping up to be a match for 2004 in terms of IPO activity, but not proceeds. Through the third quarter, 164 IPOs raised $29.9 billion, compared with last year's totals of 171 IPOs and $35.6 billion raised.

"We continue to see a broadening of IPO activity across industry sectors, with fewer blockbuster deals," said Scott Gehsmann, North American Leader of PricewaterhouseCoopers' Global Capital Markets Group. "This broadening of market activity is encouraging as the market heads into the fourth quarter, typically the most active of the year."

Listed below are the top ten third-quarter IPOs for each year. These accounted for 44 percent of the capital raised in Q3 '05 versus 62 percent last year.



Gehsmann noted that no one sector truly dominated this quarter, unlike last year, when financial services and technology/infocom accounted for 63 percent of deal volume and 83 percent of total proceeds. While the broad industrial sector led in terms of proceeds, with $3.49 billion raised from 12 deals, there were 12 deals in financial services, 10 in infocom/technology and health, nine in consumer products and services, and eight in the energy sector.

The broader market activity resulted in gains for some sectors and large declines for others.

Specifically:

REITS, which raised more than any other industry in the first half, stalled this quarter. While eight REIT IPOs raised $4.2 billion in the first half of this year, there were only two REIT deals worth $343.7 million this quarter. This contrasts sharply with 10 deals worth $2.3 billion during Q3 '04, and perhaps reflects concerns over the sustainability of the real estate boom.

Shipping and chemicals helped boost the broad industrial sector. Shipping posted a tenfold gain in proceeds raising $1.2 billion from four deals this quarter, compared with $147 million from one deal during Q3 '04. Chemicals also showed an increase in deal size, with $1.1 billion raised from two deals this quarter, compared with one $171 million IPO during last year's third quarter.

Energy posted significant gains while the broad health sector advanced. Perhaps driven by the run-up in energy prices, proceeds from energy transactions were up by a factor of three year-over-year, with $1.4 billion raised in eight deals, compared with $421 million from two deals last year. The health sector, which includes drug, biotech and devices, showed a steady increase in deal size, with ten IPOs raising $656 million, compared with $460 million from nine IPOs last year.

Deal size was down sharply on NYSE and NASDAQ, as both maintained volume shares. This quarter, 28 percent of all IPOs occurred on the NYSE, 67 percent on NASDAQ, and five percent on AMEX, compared with 31 percent, 66 percent and three percent, respectively, last year. However, NASDAQ saw its share of IPO proceeds fall from 47 to 43 percent year over year, as average deal size declined from $158 million to $93 million. While the NYSE continued to see its share of IPO proceeds increase, from 53 to 57 percent, average deal size fell 24 percent, from $386 million to $293 million. Year-over-year, only AMEX experienced a gain in average deal size this quarter, from $11 million to $17 million.

Proceeds from non-U.S. companies were off 29 percent for the quarter and 67 percent for the year. Five third-quarter IPOs involving non-U.S. companies raised $1.04 billion this year, compared with $1.47 billion from four IPOs last year. This may indicate a stabilization of activity by non-US companies following large declines in activity for the first half of '05.

Europe attracts biggest international IPO in three years amid signs of softening. 128 IPOs raised euro 8.49 billion this quarter, compared with 117 IPOs that raised euro 4.68 billion during Q3 '04. The increase in proceeds was driven largely by Gaz de France, the world's largest IPO in three years, which raised euro 3.48 billion in a Euronext listing. However, deal volume on all European markets actually declined in Q3 '05 as compared to Q2 '05, from 174 to 128 IPOs, ahead of the implementation of the EU Prospectus Directive.

Gehsmann noted that the IPO volume for 2005 is generally consistent with that of the previous year though the average deal size has been on a decline. An increasing number of companies seeking to complete IPO's, albeit smaller offerings, may indicate a healthy outlook for the capital markets.

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