Don’t worry too much about the U.S. IPO market — an uptick in activity is expected in the fourth quarter as market conditions stabilize.
That’s the conclusion from the most recent report from Mergermarket, a research analysis firm. The bad news is that companies considering an initial public offering “will need to take a more modest approach to valuations to entice investors after the volatility seen recently,” concluded Mergermarket in its report on market activity for the third quarter and year-to-date.
As for the third quarter, U.S. IPOs raised $4.8 billion from 29 deals, significantly below the $40.2 billion raised a year ago. Excluding the $25 billion raise by Alibaba’s mega IPO in September 2014, the third quarter’s decline from a year ago is still a substantial $10.4 billion.
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While there was an increase in IPO activity in the summer, with 33 IPOs pricing in June, that hit a bump in mid-August when global stock fell due to the economic crisis in China. The result was many firms electing to put their IPO plans on hold.
The Mergermarket study concluded that the supersized valuations of the second quarter and early third quarter are probably going to be nonexistent in the fourth quarter. The five IPOs that priced in the first week of October were below their proposed range, the report noted.
The report also said that companies that were ready to go public before Labor Day are now reevaluating their IPO timing, reassessing the valuations they could receive. It concluded: “Companies will now have to offer wider IPO discounts to their comparables to lure investors in the fourth quarter. Investors are now seeking a larger cushion to purchase the same stocks they would have otherwise purchased at a higher price in a more stable environment.”
For the first nine months, there were 128 IPOs, with the offering size reaching $23.2 billion. The bulk of the IPOs, at 59, were in the biotech and pharma sectors. Other sectors include energy and financial services. That’s compared with 218 IPOs, with the offering size reaching $72.5 billion, in the same year-ago period.
Of the top 10 listings on the NYSE and Nasdaq exchanges year-to-date, the one that’s in the wearable tech space is Fitbit Inc., which in June priced at $20 a share, above its estimated $17- to $19-a-share range. The offer size was $841 million.
In the year to date, the U.S. led the charge in IPOs by value. Belgium placed second with 3 IPOs, raising $571 million. Canada followed in third place, also with 3 IPOs, but raising only $320 million. China was fourth, with six IPOs raising $250 million. Israel was next with five IPOs, raising $249 million. Rounding out the top six was the U.K., with two IPOs that raised $230 million.