Is the U.S. market for initial public offerings back? In 2012 it was the best among a group of global underperformers, but it could do even better this year.
Worldwide IPO issuance fell almost 30%, to $99.6 billion, last year, the lowest level since 2008, according to Renaissance Capital. But there are reasons to expect a better showing in 2013, particularly in the United States, experts say.
In its year-end IPO market report, Renaissance Capital blamed the weak Chinese stock market for the global decline. IPO proceeds dropped 40% in the Asia-Pacific area, but a 64% falloff in crisis-plagued Europe also dragged on funds raised globally.
In the U.S., on the other hand, proceeds from IPOs rose 17%, to $43 billion. That amount constituted 43% of all IPO funds raised globally, up from 25% in 2011. Facebook’s $16 billion market debut in May, though bungled, juiced North America’s proceeds total. U.S. IPOs were also top performers: while globally IPO shares rose 10.4% on average from their offer price, U.S. issues returned an average of 21%, up from -10% in 2011.
“The positive returns helped revive global IPO activity at the end of 2012 and should support stronger issuance in 2013 from the large $200 billion global IPO pipeline,” the report stated.
Heading into 2013, 283 companies were in the global IPO pipeline. Tim Keating, CEO of Keating Capital, a business-development firm, said less volatility, solid equity-market performance in 2012, and better aftermarket returns for investors this year are positive signs for companies looking to go public in 2013. He expects between 125 and 150 U.S. companies will list in 2013.
“If I had to look into the crystal ball for 2013 . . . [Federal Reserve chairman Ben] Bernanke intends to inflate [his] way out of [the economic slowdown], and that bodes well for the moment for equities,” says Keating, referring to the Fed’s decision in December to implement further quantitative easing. “What the Fed is doing is forcing every investor in the country to move out on the risk curve, so we have to see some flow into equities in the short term.”
Next year could also bring some of the first tangible results from the Jumpstart Our Business Startups Act, which eases some of the compliance burden that newly public U.S. companies face. The new law, says Keating, will draw in companies “that have been neutral or, worse, averse to an IPO because of Sarbanes-Oxley.”
Keating says institutional investors and underwriters showed great discipline pricing IPOs this year (with the exception of Facebook), and predicts that will continue in 2013.