U.S. IPO Activity Loses Steam to PE Deals in First Half of 2015

In the strange times category of today’s innovation news, a preview of IPO activity through the first half of 2015 suggests that market bubbles don’t always rise.

In fact, the total number of IPO deals and proceeds actually sank through the first half of 2015, with 101 IPOs raising total proceeds of $19.7 billion, according to the latest quarterly report on global IPO trends from EY, the accounting and consulting firm previously known as Ernst & Young.

That’s a 36 percent decrease in the number of deals and a 44 percent decline in gross proceeds from the first half of 2014, when EY counted 158 deals with a value of $35.4 billion. EY based its IPO activity report on data from Dealogic as of June 16, as well as expected IPOs through the end of June.

While healthcare IPOs continue to dominate (see below)—EY has counted 40 so far this year—technology IPOs have been lagging behind the 2014 pace. EY has counted only 15 tech IPOs in the first half of 2015, compared to 47 over the same period last year.

If you thought the IPO market was overheated, the shift in tech IPOs can be attributed to a continuing strong appetite among late-stage growth companies for private equity financings, according to Jackie Kelley, an EY partner, and global and Americas IPO markets leader.

Private financings have “significantly impacted the flow of IPOs this year, as companies have been able to remain private longer,” she says in a statement from EY. In other words, private equity financings are siphoning off many of the hottest IPO deals.

Renaissance Capital, the Greenwich, CT, firm that manages IPO exchange traded funds, has been tracking a similar downward trend.

As of late yesterday afternoon, the Renaissance Capital website reports that 86 IPOs have priced so far this year—a 36 percent decline from 147 IPO pricings in the first half of 2014. Renaissance Capital also counts a total of $15.8 billion in IPO proceeds so far this year, down by over 45 percent from the $31.5 billion raised in the same period last year.

Renaissance also reports that 129 IPOs have been filed so far this year, down just over 34 percent from the first half of 2014.

No overvalued market would be complete without a little fizz, however, and this week is shaping up to be the biggest week for IPOs in over a decade, with somewhere between 14 and 18 IPOs expected to price this week.

“IPOs may be down overall, but the momentum is picking up,” Renaissance Capital’s Kathleen Smith wrote in an e-mail to Xconomy. “We have a very heavy deal calendar between now and the end of June. So far in June we have had 17 IPOs and we think another 17 will get done before the end of the month. That would mean 34 deals get done in June—more than last year and possibly the busiest month since 2000.”

Smith added: “The IPO market is working because the fuel that powers the IPO issuance engine is aftermarket returns. The Renaissance IPO [exchange traded fund] (NYSE: IPO), a basket of already trading recent IPOs is outperforming the overall market [year-to-date] up almost 9 percent vs S&P up 3 percent. Also, note the follow through for recent IPOs Fitbit and Shopify.”

The list of impending IPOs includes two Cambridge, MA-based life sciences companies: Seres Therapeutics plans to raise about $100 million for its microbiome-based treatments. Catabasis Pharmaceuticals expects to raise total proceeds of roughly $60 million to advance its therapies for Duchenne muscular dystrophy and high cholesterol.

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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