EY IPO Insights - September 2013

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Sep 19, 2013 - Moreover, the health care sector, such as biotechnology and pharmaceutical development firms, led IPO act
September 2013

EY IPO Insights IPO outlook from EY Strategic Growth Markets

US IPO pipeline remains robust in Q3 Jacqueline Kelley Americas IPO Leader Jacqueline Kelley is an Advisory Services partner for Ernst & Young LLP in Orange County, California, and the Americas IPO Leader for the Strategic Growth Markets practice. In this role, she is responsible for leading a practice serving IPO‑bound companies. With more than 20 years of experience, Jackie has an extensive background in providing audit and advisory services to private and public companies, including SOX 404 implementations, annual financial audits, business process reviews and IPO readiness services. Jackie is a CPA in California. She received a Masters in Accounting from the University of Southern California.

Contact us today For more information on EY Strategic Growth Markets, please contact Jennifer L. Compton at +1 201 872 1294 or at jennifer. [email protected].

For Q3’13, US exchanges are projected to raise US$11.8b from 65 IPOs, accounting for 33% of listings globally in terms of number of deals and 49% by capital raised. The number of completed IPOs in the US so far for 2013 has already surpassed last year’s total — with 160 IPOs 1 expected in the first nine months of 2013 compared to 137 in the whole of 2012 — with both the second and third quarter deal volumes greater this year than during the same periods last year. By capital raised, Q1’13 and Q3’13 totals have surpassed the total proceeds of Q1’12 and Q3’12. From a sector perspective, health care is the most active sector by number of deals and ranks second by capital raised (21 IPOs, which raise US$2.4b)1 in Q3’13. Moreover, the health care sector, such as biotechnology and pharmaceutical development firms, led IPO activity by both deal volume and deal value for the first nine months of 2013 — this is the highest volume of IPOs since 2007. The median first day return for health care IPOs completed in the first nine months of 2013 is around 9.3%, this compares to median return of all US IPOs for the same time period of 5.0%.

 Q3’13 refers to projected IPO activity which consists of priced

1

IPOs as of 19 September and expected IPOs by end of September. Source: Dealogic.

Secondly, the technology sector is expected to be the second most active by deal numbers in Q3’13 and the first nine months of 2013. The sector ranked third by capital raised (12 IPOs, US$1.4b)1 in Q3’13. Energy was the most active sector by proceeds in Q3’13 and third by deal number (9 IPOs, US$3.4b)1; this sector should continue to be a substantial contributor heading into Q4’13. Although the US accounted for six of the largest 10 IPOs globally in Q3’13, average deal size continues to trend lower, because of the higher number of health care and technology IPOs that came to the public market with average deal size being 36% and 34% lower than average deal size of all US IPOs. Expected average deal size on US exchanges in Q3’13 is nearly US$182m, this compares to the average deal size of US$116.3m for health care IPOs and US$119.8m for technology IPOs. Despite encouraging levels of activity and investor interest, pricing remains a top concern for investors, some pressure on pricing continued in Q3’13. While 20% of offerings were priced above range, 28% were priced below range. Among those priced within range, almost 40% were at the lower end.

However, post-IPO returns trended higher with average first day returns for US IPOs in Q3 at 14.2%, outperforming the S&P 500 index by 9.1%. Q3’13 saw fund flows into US equities, on positive investor sentiment regarding US prospects. Alongside the capital influx, US valuations are also firm. For example, the S&P 500 is currently trading at around 20 times reported earnings, close to the highest level since April 2010. This combination of attractive valuations and the solid aftermarket performance of recent offerings suggests that Q4’13 will be a good time for companies to go public in the US market, across a range of industries.

Looking ahead, Real estate IPOs are expected to continue to be active in Q4’13, in particular Real Estate Investment Trusts (REITs) and residential development firms. We expect that Q4’13 should be better for the overall technology sector, with cross-border listings a potentially important contributor to new listing activity on US exchanges. The success of the US$1.2 billion secondary offering by social networking firm LinkedIn in early September was an important barometer of investor appetite in the social media listings and the outcome of the pending listing of Twitter Inc. — potentially in Q4’13 or Q1’14 — will provide further evidence of the level of investor interest. We also expect to see IPOs in big data and cloud computing sub-sectors over the next few months. In addition, financial firms should be a substantial contributor to IPO activity.

Projected IPO comparison — year over year 2

IPO pricing data — first day average return3

58%

101 Q1 – Q3 2012

160 Q1 – Q3 2013 (Projected)

11.5% Q3 2012

14.2% Q3 2013

 Q3’13 refers to projected IPO activity which consists of priced IPOs as of

2

19 September and expected IPOs by end of September. Source: Dealogic.

 All data as of 19 September 2013

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EY IPO Insights September 2013 |

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Year-to-date Q3 effective IPOs by sector 4 No. of IPOs



Number of effective IPOs 4

Proceeds ($mm) Q3 2012

Healthcare

21 2442

Technology

12 1438

27

Energy and power 9 3381 Q3 2013 Industrials

5 808

Real estate

4 1211

Media and entertainment 3

141%

Number of new registrations 5

602

Financials

3 406 Q3 2012

Retail

2 261

Materials

2

34

161 Q3 2013

Telecommunications 2 Consumer products and services 1

65

82%

62

59 690

Consumer staples 1 383

Proceeds from new registrations $mm 5

120

Total

65 11842

100

10%

10075 Q3 2012

11099 Q3 2013

 Q3’13 refers to projected IPO activity which consists of priced IPOs as of

4

19 September and expected IPOs by end of September. Source: Dealogic.

 All data as of 19 September 2013.

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EY IPO Insights September 2013 |

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