IPO INSIGHT: The Return Of IPO Confidence
What's in store for the publicly traded and their future in M&A
January 23, 2012
Jitters over the IPO market seem to be lessening. On Mon., Jan. 23, global accounting firm Ernst & Young released its U.S. IPO Pipeline Analysis and gave credit to the recent gains in the stock market. The Dow had weekly gains for three straight weeks and last Friday it had an increase of 2.4 percent. However, by noon today it experienced a slight hiccup and went down 0.4 percent. S&P 500 and the NASDAQ also had a steady gain for three weeks but its points also fell a several points.
Okay, so we are 23 days into the New Year but what exactly does it mean for IPO hopefuls? Ernst & Young broke down the numbers and took a look at the end Q3 2011 and saw that there was a consistent flow of companies in the position to take steps towards becoming a public entity by Q4.
According to the report, 27 successful initial public offerings were issued, up 69% from the previous quarter. Technology, oil and gas as well as the banking and capital market sectors led the pack in new IPO registrations. The leaders collectively had 74 entrants, which were responsible for 42% of all registrations for the fourth quarter.
It was interesting to see that the technology market accounted for 21% of the IPO contenders, especially after Zynga’s pricing took an immediate dive shortly after it priced in late December. Zynga’s situation left many investors and companies wondering if the tech bubble finally had its day.
"Good companies are always able to raise capital," Jackie Kelley, Americas IPO head for Ernst & Young, said in the report. "Even though the past couple of years have been very volatile for IPOs, these companies that have been waiting in the pipeline have had time to evaluate their options, better prepare, and get ready to tell their story. Companies that have managerial diligence and endurance and organizational discipline before going public always attract great investors-and that's what we'll see in 2012."
Herb Engert, the head of the firm’s Strategic Growth Market division, added that it’s hard to talk about IPOs without bringing up M&A. He said the M&A environment also looks “promising” for 2012. “There is a lot of corporate cash on the balance sheet and a lot of options out there. I think we will still see some choppiness in the markets but overall confidence is returning among investors.”
I’ve heard this story for the last two years. Strategics as well as private equity investors are sitting on cash and waiting for the right time. What are they waiting for? I’m waiting for them to display the level of confidence the IPO contenders have begun showing.
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