Authored by Mark Ellenbogen, Managing Assurance Partner at BDO USA, LLP in Bethesda
Investment bankers are divided when asked to predict activity for the second half of 2014, according to BDO USA’s 2014 IPO Halftime Report. The study finds that than one-third (38 percent) of capital markets executives at leading investment banks anticipate activity will increase further, while a similar proportion (35 percent) believe activity will be flat, and just over one quarter (27 percent) expect a decrease in deals. Overall, executives anticipate a one percent increase in the number of U.S. IPOs during the second half of the year, totaling an expected 293 IPOs for all of 2014. This would represent a 32 percent increase from last year and the most deals on U.S. exchanges since 2000 (406).
IPO proceeds increased more than 50 percent from the first six months of 2013. Based on the predicted average IPO size of $243 million for 147 deals in the second half of the year, total U.S. IPO proceeds should reach $67 billion by the end of the year. This would represent a 22 percent increase in proceed volume from last year and the most proceeds since 2000 ($96.9 billion).
While six of the past eight years featured offerings dominated by the technology sector, in 2013 and thus far in 2014, the healthcare sector has led all industries in the number of U.S. IPOs. Looking ahead to what potentially signals continued promising prospects for the DC region, a majority (62 percent) of investment bankers predict additional healthcare offerings during the second half of the year, and an even greater proportion (71 percent) forecast an increase in IPOs within the technology sector. In addition, fifty-four percent of executives anticipate an increase in biotech deals during the remainder of the year.
Additional verticals where more offerings are expected include energy (66 percent), real estate (41 percent), media/telecom (38 percent), industrial/manufacturing (33 percent), financial (30 percent) and consumer/retail (18 percent).
When asked to identify the key factors driving IPO activity during the first half of 2014, investment bankers are divided among four drivers: private equity and venture capital firms needing to cash in profits (27 percent), positive IPO performance encouraging more businesses to move forward with offerings (26 percent), low interest rates increasing investor demand for higher yielding assets (24 percent) and increased confidence in the U.S. economy (23 percent).
Looking to the remainder of 2014, one-third of investment bankers expect U.S. exchanges to increase their current share of global proceeds, nearly half (49 percent) predict the U.S. will maintain its current share, and 16 percent believe the national share will decline.
Locally, the region’s prominence within the IPO market continues with the expected filing of Arlington based Opower, as well as through the recent offerings of Landover-based 2U, Leesburg-based K2M and Gaithersburg-based GlycoMimetics, who led the way for all U.S. IPOs this year.
This robust activity, coupled with government incentives (proposed and/or already implemented) for businesses both in DC as well as in surrounding communities, bodes well for the potential growth of the local investor community as well as for the general economic growth of the region.
A complete copy of the 2014 BDO Halftime Report can be accessed by clicking HERE