IPOs are Starting the Year on a Faster Note Which Should Boost Employment

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There may be fewer of them on the books compared to the final quarter of 2011, but IPOs with more than $32 billion in filing proceeds, nearly $4 billion more than Q4 of 2011, are registered to go public on U.S. exchanges.

As of March 31, there were 164 IPOs with more than $32 billion in filing proceeds registered to go public on U.S. exchanges. While that is a drop in the number of IPOs from 178, the total filing proceeds are higher than $28.4 billion at the end of 2011.

As stronger equities markets created enthusiasm among companies to bring new issues to market, both companies and investors felt more confident about IPOs in Q1, according to Ernst & Young's U.S. IPO Pipeline Analysis. What's more, their confidence was rewarded as shares of newly issued IPOs rose an average of 32.9 percent during the quarter.

"As IPO activity increases, trading volumes and employment numbers should rise concurrently," proclaimed Frank Hatheway, Chief Economist at Nasdaq.

As 44 new companies joined the pipeline in 1Q 2012, another 39 registrants launched their IPOs and 10 withdrew their offerings from the pipeline. An additional eight companies were omitted due to the fact their registrations have been sitting on the books for more than 12 months. Comparatively, in 4Q 2011, 46 companies registered, 27 went public and 12 withdrew.

The high level of activity was driven by growth companies. More than 70 percent of new registrants this quarter had filing proceeds of less than $250 million, reflecting two trends: strong interest from private equity and venture capital firms in rolling out their holdings, and strong market appetite for growth companies.

With Facebook's $5 billion IPO in registration, average deal size increased by 22 percent to $195 million in 1Q from $160 million last quarter. Two-thirds (109 registrants) were seeking $100 million or more at the end of 1Q.

A sector breakdown of the 164 IPOs currently in the pipeline shows that 31 or 19 percent are in Technology, 24 or 15 percent in Oil and Gas, and 20 or 12 percent in Life Sciences. Retail and Banking and Capital Markets round out the top five sectors. The top three sectors for new IPO registrations combined have 75 registrations, and account for 46 percent of the total registrations as of 1Q.

Regionally, California continues to lead deal volume with 33 companies seeking $8.2 billion, followed by Texas with 20 companies seeking $6.2 billion, and Massachusetts with eight companies seeking $966 million.

China is the third largest geographical listing with 12 IPOs seeking $874 million. This recent resurgence of cross-border listings will continue to be a hot trend as the number of foreign companies accounted for 30 percent of total new registration in 1Q versus 13 percent in the last quarter of 2011.

The 1Q Review: IPOs Ramping Up and Showing Positive Performance

During the first quarter, 39 effective IPOs were issued, an increase of 44 percent from 4Q. Although none of the most anticipated large IPOs were priced during 1Q, most of those that came to market performed well. Of the 39 IPOs priced, 33 or 85 percent had positive returns. The average return for the new offerings was 32.9 percent as technology companies led the charge. Thirteen technology IPOs had an average of 61.8 percent post IPO return.

While the data suggests that for the past three months, 178 companies have been looking to bring IPOs to market, some companies withdrew filings. Ernst & Young's review found that a number of companies exercised other options in lieu of going public. Among them, private-equity (PE) backed Transunion announced its sale to other PE firms for more than $3.3 billion on February 17th. Dynamic Offshore, also backed by PE, was bought by SandRidge Energy for $1.26 billion. Platinum Energy Solutions and Merrimack Pharmaceuticals postponed their IPOs because of unfavorable market conditions.

"This is a time when it will be critically important for individual companies to make sure that going public is the best decision," said Herb Engert, Strategic Growth Markets Practice Leader for Ernst & Young. "There is a lot of corporate cash on balance sheets and a lot of options out there. I think we will still see some choppiness in the markets despite increasing market confidence."