2015 US IPO Market Analysis and Review

2015 US IPO Market Analysis and Review

Following two years of strong markets, with 213 deals pricing in 2013 for $54.9 billion and 261 deals pricing in 2014 for $85.3 billion, 2015 experienced a steep decline. Only 153 deals priced for $30.0 billion in proceeds in 2015, the lowest total since 2009. It should be noted that this total does not include SPACs or unit IPOs. The drop was particularly strong in the tech and energy sectors and in large offerings as few LBOs came to market in 2015. Biotech deals maintained a strong presence while tech offerings dropped off sharply. Pre-Labor Day offerings came at a fairly strong rate, but with the drop in overall markets at the end of August, the number fell sharply and offerings were pricing below midpoint, which contributed to higher after-offering gains. Factors contributing to the reduced deal flow include uncertainty about US and European monetary policies, sliding energy prices, poor results from preceding IPOs and a shaky Chinese economy. Additionally, M&A activity and private equity investment served to provide funding to some companies, reducing IPO demand.

Overall, 58% of 2015 IPOs currently trade below their offer price, averaging a 4% drop, compared to over 20% returns for the past 3 years. Conditions appeared substantially better until the August market correction. First day pops averaged 14.4% in 2015, but by the end of the year, average aftermarket returns showed a negative 15.4%.

HEALTHCARE

The Health Care sector, with 69 IPOs coming to market,  was 45% of the IPO market in 2015, up from 36% in 2014. It should be noted that the number of biotechs decreased 17% to 69 this year, compared to 2014, a trend which could continue in the coming year. More biotechs priced above range in 2015, more had a market cap of more than $1 billion, and more raised more than $100 million, compared to previous years. However, returns fell to a 5% loss, compared to a 38% gain during 2014. Nine of the ten best-performing US IPOs in 2015 were in the Health care sector, with aftermarket returns of 69% to 119%. Overall, health care experienced a 5% loss, driven by 58% declines by six diagnostic IPOs.

FINANCIAL SERVICES

There were 22 Financial Services offerings in 2015, 14% of the total offerings for the year, and a 44% drop from 39 offerings in 2014. Financial Services offerings performed fairly consistent as they showed an average return of 7% in 2015.

TECH

Only 20 technology IPOs were offered in 2015, raising $4.2 billion, compared to 40 and $32.3 billion in 2014, decreasing from 20% to 13% of the IPO market. First-day gains averaged 19%, but provided an average return of 1%, with high-profile “Unicorn” offerings like Box and Rapid7 providing 66% and 58% first day pops, respectively. However, the initial pops of the aforementioned companies showed negative returns by the end of the year. Adesto Technologies offered a 12% first day pop and maintained gains, currently showing a 52% gain. Atlassian, which priced above range at $21, offered a 31.8% first day pop and is currently trading at a 36.9% gain. Overall, however, technology IPOs showed increased volatility in comparison to other sectors and experienced large aftermarket losses.

CONSUMER

The 25 Consumer IPOs represented 16% of the 2015 market and were a 44% reduction from the 45 offerings in 2014.

ENERGY

From 2014 to 2015, the number of energy offerings decreased from 30 to 11, dropping from 10% to 7% of the IPO market. The steep decline in oil and gas prices across the broader energy market drove a sell-off resulting in an average 31% loss for the year.

MATERIALS

The two Materials IPOs in 2015 constituted an 80% reduction from 2014 levels and represented 1% of the market.

INDUSTRIALS

There were two Industrials IPOs in 2015, up from one in 2014, representing 1% of the market.

TRANSPORTATION

There was one Transportation IPO in 2015, the same as in 2014, representing less than 1% of the total market.

BUSINESS SERVICES

There was one Business Services offering in 2015, comprising less than 1% of the total market.

LARGE OFFERINGS

Only 3 offerings (First Data, Tallgrass Energy and Columbia Pipeline Partners) in 2015 raised over $1 billion, compared to 11 in 2014 and 7 in 2013. Of the 10 largest US IPOs, only two, Fitbit and TransUnion had gains at the end of the year (currently 43.4% and 23.0%). Four of the largest offerings were energy and were strongly depressed as oil prices fell.

A number of large offerings were scheduled in 2016, but have been pushed back to 2016, including Albertsons, Neiman Marcus, Univision and Laureate Education, each of which are anticipated to raise over $1 billion. Current consensus indicates that other large offerings, which Wall Street affectionately refers to as “unicorns”, are possible for 2016 and include Uber, Airbnb, Snapchat and Pinterest, with others possible.  However, it should be known that two of the Unicorns that debuted in 2015, including Box and Pure Storage, went public at valuations that implied the IPO was a “down round”(struck at a valuation lower than the last private round), a factor that may have constrained deal supply.

TOP PERFORMING US IPOs

The three top performing US IPOs were Aclaris Therapeutics (issue price $11, currently $28.69, 160.1% return), and Spark Therapeutics (issue price $20, currently trading at $44.07, a 120% increase) and Seres Therapeutics (issue price $18, currently $35.77, a 98.7% increase). Other top performers are: Shake Shack (89.7 % return), Collegium Pharmaceutical (103.8 % return), Inotek Pharmaceuticals (86.7% return), Advance Accelerator (86.4 % return), Penumbra (81.1% return), Aduro Biotech (67.2% return) and Voyager Therapeutics (47.9 % return). All are health care IPOs, except Shake Shack, which is in the Consumer Sector.

WORST PERFORMING US IPOs

The ten worst performing US IPOs were comprised of 8 Health Care, one Energy and one Technology offering, with losses ranging from 66% to 87%. The three lowest performing IPO was the Technology offering, MaxPoint Interactive, (issue price $11.50, currently $1.70, an 85.2% loss), Zosano Pharma (issue price $11, currently $2.28, a 79.3% loss) and Bellerophon Therapeutics (issue price $12, currently $2.90, a 75.8% loss).

PRIVATE EQUITY AND VENTURE CAPITAL IPOs

Of the 2015 IPOs, 39 were private equity and raised $11.3 billion. First Data raised $2.6 billion and was the only LBO to raise over $1 billion. There were several large LBOs which were planned for 2015, but have been pushed back in anticipation of better market conditions. Several other large private companies were acquired in buyouts and were thus out of the IPO pipeline.

Venture capital offerings comprised 50% of all IPOs in 2015, but declined 33% from 2014 and yielded 75% lower proceeds.

PIPELINE AND PROJECTIONS

Currently, the IPO pipeline consists of 86 companies. 48 companies have filed in the past 90 days, with a target of raising $11 billion, down from 85 deals and $16 billion at the end of 2014. Three large IPOs, Albertsons Companies, Laureate Education and Univision, are in the backlog and could each raise over $1 billion in 2016. Weak economic conditions have postponed potential IPOs and may continue for some time in the future. Additionally, M&A activities also provide funds for private equity owners and may remove some potential IPOs from the pipeline. There are a number of large venture capital-backed companies which may pursue IPOs in 2016. However, valuations will continue to be a source of pressure on IPO offerings and eventual pricing. In our opinion, and in the opinion of trusted sources and syndicate desks with which we have conferred, 2016 should begin slowly as investors deal with questions of US credit policy, a strong dollar, low energy prices and global financial conditions and as issuers seek to anticipate market trends and maximize proceeds.