March 15, 2017
Following a lackluster year in 2015, IPO activity in the US continued to decline in 2016. There were 102 US IPOs in 2016 by US domestic and foreign private issuers (FPIs), raising more than $16.6 billion. By comparison, 153 IPOs priced in 2015, raising more than $23.9 billion. This followed an exceptional year in 2014, in which 254 IPOs priced, raising more than $73.3 billion.
The slowdown was most pronounced in the first quarter, during which only eight IPOs went to market. According to Renaissance Capital, a manager of IPO-focused ETFs, the first quarter of 2016 was the least active first quarter by number of IPOs since the first quarter of 2009, and it raised the lowest amount of proceeds in any Q1 in at least 20 years. In 2016, the number of IPOs increased to 26 in the second quarter and 34 in each of the third and fourth quarters, but still fell far short of previous annual totals.
Average deal size throughout the year was up slightly from 2015. The average deal size in 2016 was $163.6 million, up from $156.6 million in 2015 but down from $288.7 million in 2014. In 2016, three IPOs raised over $1 billion (US Foods Holding Corp.’s $1.02 billion IPO, ZTO Express (Cayman) Inc.’s $1.4 billion IPO, and Athene Holding Ltd.’s $1.08 billion IPO), compared to just one IPO over $1 billion in 2015. However, according to Renaissance Capital, 2016 saw the lowest amount of new capital raised since 2003.
Factors influencing the drop in the number of IPOs included:
- The ready availability of private financing from venture capital and private equity sponsors, as well as mutual funds, hedge funds, and sovereign wealth funds, at high valuations, allowing companies to delay going public.
- Fewer large-scale IPOs of private equity portfolio companies.
- An active M&A market, offering an attractive alternative exit path for financial sponsors.
- Uncertainty regarding the US presidential election.
- General volatility in the global markets, including following the Brexit vote in June.
Practical Law’s Article, What’s Market: A Round-Up of IPOs in 2016 examines the trends that emerged in 2016 relating to:
- Confidential submissions and reduced financial disclosure.
- Presentation of financial statements by FPIs.
- Underwriting discounts.
- Choice of securities exchange.
- Most active industry sectors.
- Lock-up agreements.