U.S. IPO Market Delivers Impressive Year-Over-Year Growth in Q1 of 2017
New Uncertainties Challenge Promising Forecast for Remainder of Year
After a very difficult year in 2016, the U.S. market for initial public offerings (IPOs) bounced back significantly in the first quarter of 2017 – with offerings (+ 212%), proceeds (+ 1,380%) and filings (+ 58%) up dramatically over Q1 2016, when stock market uncertainty brought offering activity to a virtual halt. The $9.9 billion in proceeds raised was the most in a first quarter since 2014 ($10.6 billion), when both proceeds and offerings reached their highest levels since the dot-com boom of 2000.
On a quarter-to-quarter basis, proceeds (+ 52%) and filings (+ 36%) were up considerably from Q4 2016, although the number of offerings were down (- 17%).
Much of the positive performance in Q1 can be attributed to a more welcoming economic climate, as both the Dow Jones and NASDAQ stock indexes reached record highs during the quarter and the Trump administration’s pro-business agenda – promising tax cuts, deregulation and infrastructure spending – proved encouraging for companies looking to sell shares to the public for the first time.
2017 Q1 U.S. IPO Trend Tracker
|2016||2017||+ / –||10 Year High||10 Year Low|
|IPOs||8||25||+ 212%||64 (2014)||1 (2009)|
|Proceeds||$0.7B||$9.9B||+ 1,380%||$19.1B* (2008)||$0.7B (2009, 2016)|
|Average Deal||$88M||$396M||+ 350%||$1.59B* (2008)||$88M (2016)|
|Filings||24||38||+ 58%||106 (2014)||4 (2009)|
*Heavily impacted by March 2008 $17.9B VISA IPO – Source: Renaissance Capital
A major contributor to the jump in proceeds in Q1 was the March 1st offering of Snap, Inc., the parent company of social media darling, Snapchat. The Snap IPO raised $3.4 billion, accounting for more than one-third of total proceeds raised in the quarter.
But the significance of the Snap IPO goes beyond its impact on Q1 proceeds. Snap was the largest technology offering since Alibaba went public in 2014 and it was also one of the more visible “unicorn” companies – privately-held businesses valued at more than $1 billion. Snap’s IPO performance was widely expected to determine whether more unicorns would be leaving their private stables for the promise of the public markets in 2017.
On its first day of trading, Snap rose 44% over its $17 offering price and climbed as high as $29.44 (+ 73%) on day two, but shares have dropped significantly since and were trading below the company’s first day closing price of $24.48 at the close of the quarter.
In addition to the tremendous increase in proceeds during Q1 of 2017, perhaps the most significant development of the quarter was the wide breadth of industries represented among the offerings. The U.S. IPO market saw multiple offerings from the energy (5), healthcare (4), technology (4), consumer (4), industrial (3), real estate (2) and financial (2) sectors.
The election of Donald Trump clearly had a positive impact on the U.S. stock market during Q1 and the President’s promises – and those of the Republican-controlled Congress – to cut taxes and rollback regulations were positive signs for businesses that may have previously avoided going public due to regulatory fears.
Yet, some economists believe the “Trump Bump” may be over.
They question whether stocks are currently over-valued and market indexes did drift downward for most of March, although they remain above pre-election levels. Moreover, the recent collapse of the Republican healthcare bill in the House has begun to raise doubts about the ability of the President and the GOP to deliver on their aggressive pro-business agenda.
These concerns introduce a certain level of uncertainty for the U.S. IPO market moving forward, but the forecast for the remainder of the year remains promising.
After a difficult 2016 – that led to numerous deal postponements – there is significant pent-up desire among investors in private equity and venture capital to cash out of their holdings, many of which they have owned for more than the typical 10 years. Private equity backed businesses accounted for almost half of all IPOs in the first quarter and there are more to come.
IPOs on the Horizon
The following are potential U.S. IPOs of note for Q2.
|Offering Company||Industry||Potential Offering Size|
|Gardner Denver Holdings||Industrial Equipment||$800 million|
|Azul||Brazilian Airline||$475 million|
|Antero Midstream||Energy||$500 million|
|Cadence Bancorporation||Financial||$300 million|
|Netshoes||Brazilian E-Commerce||$100 million|
|Schneider National||Trucking/Logistics||$550 million|
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