Capital markets executives at leading investment banks are projecting continued growth in initial public offerings on U.S. exchanges in 2014, according to a new survey by accounting and consulting firm BDO USA that projects $66 billion in IPO proceeds on U.S. exchanges this year.
Sixty-three percent of the investment bankers surveyed by BDO predict an increase in U.S. IPOs in the coming year, while 27 percent forecast that activity will be flat compared with 2013. Only 9 percent of the survey respondents expect a decrease in offerings on domestic exchanges. Overall, bankers predict a 9 percent increase in the number of U.S. IPOs in 2014. They anticipate these offerings will average $273 million, which projects to $66 billion in total IPO proceeds on U.S. exchanges.
“In 2013, the U.S. IPO market experienced a renaissance with both total offerings and proceeds raised reaching the highest levels since 2000,” said Wendy Hambleton, a partner in the Capital Markets Practice of BDO USA, in a statement. “Perhaps most impressive is that this performance was accomplished without the benefit of a Visa, GM, Facebook or other major offering to pump up proceed levels. Investor optimism has finally rebounded from the financial crisis and the investment banking community is predicting even more deals and higher proceeds in 2014.”
IPO activity on U.S. exchanges increased dramatically in 2013, and capital markets executives identified multiple catalysts for the increase in offerings. When asked to identify the most prominent factor behind the increase in IPOs, bankers were evenly divided among three factors: continued low interest rates increasing investor demand for higher-yielding assets (27 percent), increased confidence in the U.S. economy (26 percent) and positive IPO performance encouraging more businesses to make offerings (24 percent).
Smaller proportions cite increased investor cash flow into stock focused mutual funds (12 percent) and the JOBS Act encouraging emerging businesses to pursue offerings (8 percent).
IPO Threats
When asked to comment upon the greatest threat to a healthy U.S. IPO market in 2014, 43 percent of the investment bankers polled cited the Federal Reserve paring back monetary stimulus, while 24 percent identified global political and financial instability. The threat of tax increases (13 percent), failure to raise the U.S. debt ceiling and related government spending cuts (11 percent), as well as high unemployment (8 percent) were identified as threats by smaller minorities of the participants.
In terms of how individual industries will fare in 2014, 73 percent of the survey respondents predicted an increase in offerings from the technology industry. Smaller majorities forecast increases in offerings in the energy (59 percent), biotech (58 percent) and health care (54 percent) industries.
For 2014, the investment bankers polled predict one-day returns of 15 percent and overall returns of 21 percent for the average IPO, not quite up to the levels of 2013. For the fifth consecutive year, private equity portfolios (43 percent) were the most frequently predicted source of IPOs in the coming year. Owner-managed privately-held businesses (23 percent), venture capital portfolios (22 percent), and spinoffs and divestitures (12 percent) were the other sources identified by the bankers polled.
When asked what offering attributes will be most valued by the investment community in 2014, 44 percent of the survey respondents cited innovative businesses with rapid growth potential. Long-term growth potential (22 percent), stable cash flow (12 percent), profitability (11 percent), strength of industry vertical (8 percent) were cited by smaller proportions of participants.
