US IPO Market Plunges to 7-year Low in 2016

Market witnessed 105 IPOs being priced, raising a total of $18.8 billion

The US IPO market in 2016 clocked its worst performance since the financial crisis in 2009, when just 56 companies listed their shares, mainly due to economic uncertainty surrounding the US presidential elections, the Fed’s rate hike decision, and the Brexit vote in 2Q FY16. In all, the US IPO market witnessed 105 IPOs being priced, raising a total of $18.8 billion in 2016. Annual IPO proceeds dropped 37% year-over-year to their lowest level since 2003, according to Renaissance Capital, an IPO investment adviser and research firm. With the S&P 500 at record highs and average IPO returns handily beating the broad market indices, the US IPO market should have produced high levels of issuance in 2016. Instead, proceeds fell to their lowest level since 2003 and activity was the worst since 2009.i

The IPO market picked up pace in Q4 FY16, which witnessed 30 IPOs being priced, raising roughly $6.9 billion. As of December 19th, 2016, 120 IPOs have been filed, of which 19 have been filed in Q4 FY16. Of the total IPOs priced in 2016, Healthcare accounted for 42 deals or 40% of the total number of IPOs, raising proceeds of $3.4 billion, followed by Technology with 20% or 21 deals raising $2.9 billion.i2i3

Healthcare takes lead over Technology

The Healthcare sector dominated the US IPO market for the third straight year, accounted for 42 deals or 40% of the total number of IPOs in 2016. Many factors, including the oil price recovery, continued low interest rates, and the subsiding volatility during the majority of the quarter has paved the way for successful public debuts, and these have also helped rebuild confidence in the US IPO market. In the Healthcare sector, investors are eyeing growth-oriented IPOs with proven earnings potential, especially biotech companies pursuing drug development in the areas of cancer treatment, immunology, genetic research, and rare diseases.

Patheon N.V., an Amsterdam, Netherlands-based contract development and manufacturing organization (CDMO), launched its IPO and began trading on the New York Stock Exchange on July 21st, 2016, under the ticker symbol PTHN. The JLL Partners-backed drug developer raised $640 million at $21 per share in its maiden offering, making it the third biggest U.S. IPO in 2016, according to Bloomberg. Medpace Holdings Inc. (NASDAQ: MEDP), a CRO that provides research-based drug and medical device development services, launched its IPO and raised about $175 million on August 16th, 2016. Protagonist Therapeutics Inc. (NASDAQ: PTGX), a clinical-stage biopharmaceutical company, was able to raise $90 million in its IPO launched on August 10th, 2016.

The US market did not witness any tech IPOs in Q1 FY16, since many companies were waiting to see the outcome of the UK’s Brexit vote in June 2016. After this gap, Japanese messaging app company Line Corp. (NYSE: LN), a subsidiary of South Korean search engine provider Naver Corp., made a strong debut on July 14th, 2016. Line’s IPO was almost 25 times oversubscribed despite concerns over the timing of the listing. Line’s IPO is noteworthy since no other technology company has raised more than $150 million in an IPO in 2016. Other noteworthy tech IPOs were Acacia Communications Inc. (NASDAQ: ACIA) and Twilio (NYSE: TWLO), both of which surpassed conservative estimates in their first public earnings releases.

In the food service industry, US Foods Holding Corp. (NASDAQ: USFD), a food service distributor, raised more than $1 billion in May 2016. Taking a cue from the investor interest in food services, AdvancePierre Foods Holdings Inc. (NYSE: APFH), a leading producer and distributor of sandwiches, sandwich components, and other entrées and snacks, launched its IPO and began trading on the New York Stock Exchange on July 15th, 2016.

IPO market picks up pace in 3Q

i4The US IPO market picked up pace during 2Q FY16, with the momentum continuing during 3Q FY16. Valvoline can be counted among the year’s biggest IPOs, along with Japanese messaging app Line Inc. ($1.15 billion), real estate investment trust MGM Growth Properties ($1.05 billion), food distribution behemoth US Foods ($1.02 billion) and pharmaceutical company Patheon Inc. ($625 million).

The other major IPOs that made their market debuts included that of Camping World Holdings Inc. (NYSE: CWH), Myovant Sciences Ltd. (NYSE: MYOV), and Motif BioSciences Inc. (NASDAQ: MFTB). Another major company that priced its IPO during the end of the year was Trivago B.V., the German travel site that is majority-owned by Expedia Inc. (NASDAQ: EXPE). Trivago started trading on the NASDAQ under the ticker symbol “TRVG” from December 16th, 2016. The company and existing shareholders sold 26.1 million American Depositary Receipts (ADRs) for $11 each, raising $287 million in the IPO. The company plans to use the IPO proceeds to focus on growth and for strategic acquisitions.

What to look forward to in 2017

The US IPO market is expected to bounce back in 2017 as the Trump administration takes over with promises to boost growth through tax cuts, spending and deregulation. Public listings will also get a boost next year from private equity firms looking to exit their investments. The potential pipeline of companies set to make their debuts in 2017 includes messaging app Snapchat’s parent Snap Inc. and ride-hailing company Uber Technologies Inc.

Snap could go public as soon as March 2017 and is expected to be valued at $20 billion to $25 billion. Investors also widely expect Uber to file for an IPO in 2017. The company was valued at about $63 billion after its latest round of funding in June. Investors are also expecting the IPO of Altice USA, the US arm of the multinational Dutch cable company, with an estimated valuation of $25 billion.

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