Initial public offerings are not expected to grow much this year, according to a new study by BDO USA.
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Only about half of the capital markets executives at leading investment banks are predicting an increase in IPOs on U.S. exchanges in 2013, and only 8 percent describe the increase as substantial. Thirty-one percent of the capital markets executives predict that IPO activity will be flat this year, while 18 percent anticipate a decrease in offerings on domestic exchanges.
Overall, the investment bankers polled predict a 6 percent increase in the number of U.S. IPOs in 2013. They expect these offerings will average $250 million, amounting to approximately $34 billion in total IPO proceeds on U.S. exchanges.
“In 2012, the number of U.S. IPOs was relatively flat with activity in 2011, but total proceeds raised were the second most in the past ten years, trailing only the pre-crisis high of 2007,” said Brian Eccleston, a partner in the Capital Markets Practice of BDO USA, in a statement. “However, more than a third of 2012 proceeds were attributable to the Facebook IPO and, absent that offering, proceeds would have been the lowest since the height of the financial crisis in 2009. If you remove Facebook from 2012 figures, the bankers’ projections for the coming year represent an approximate 28 percent increase in proceeds.”
Without the Facebook offering, the size of the average IPO in 2012 was considerably smaller than 2011 and capital markets executives identified several contributing factors for this trend. The most frequently cited factors were valuation pressures that forced offering businesses to cut prices (47 percent), smaller businesses pursuing offerings (31 percent) and companies offering a smaller percentage of the business in the deal (13 percent).
When asked to identify the greatest threat to a healthy U.S. IPO market in 2013, 37 percent of the capital markets executives in the poll cited the threat of tax increases and government spending cuts, while 34 percent highlighted global political and financial instability. High unemployment (11 percent), constrained bank lending (10 percent) and competition from foreign exchanges (4 percent) are identified as threats by small minorities of the participants.
In terms of how individual industries will fare in 2013, approximately two-thirds of the investment banking community are predicting a continued increase in offerings in the healthcare (69 percent), technology (67 percent), biotech (67 percent) and energy (65 percent) verticals. A smaller majority (54 percent) forecast a jump in real estate offerings. No other industry is predicted to achieve an increase in IPOs by a majority of the survey participants. The health care and real estate verticals experienced the biggest jump in confidence (+19 percent) when comparing the 2013 and 2012 IPO forecasts by industry.
The U.S. led all countries in IPO proceeds in 2012, generating more than 40 percent of global proceeds. Even without the Facebook IPO, U.S. exchanges would have led all other countries comfortably. When asked the chief factor driving this trend, the capital markets community identified an anticipated improvement in the U.S. economy (33 percent), the European debt crisis (33 percent) and slowing growth in China (23 percent).
Moving forward, 24 percent of the investment bankers polled said they foresee U.S. exchanges continuing to increase their percentage of global IPO proceeds during the coming year. However an even larger proportion (44 percent) believe the U.S. cut of the global pie will remain about the same as 2012, while approximately 32 percent anticipate the U.S. share declining in 2013.
Approximately 32 percent of capital markets executives believe the percentage of foreign-based IPOs on U.S. exchanges will increase in the coming year, while a slightly larger proportion (38 percent) expect that this percentage will remain flat with 2012. Twenty-nine percent predict a decrease in foreign-based offerings.
The bankers overwhelmingly (61 percent) cite Asia as the geographic location most likely to spawn foreign-based IPOs on U.S. exchanges in 2013. Latin America (15 percent), Europe (10 percent), Eastern Europe/Russia (6 percent), Middle East (3 percent) and Africa (2 percent) were other regions cited.
In terms of IPOs taking place on foreign exchanges, about one-third (32 percent) of investment bankers believe Hong Kong will be the most popular in 2013. Shanghai (19 percent) and London (17 percent) are the only other exchanges receiving double digit support.