The first three months of 2014 have been very productive for Initial Public Offerings (IPOs). Per Ernst & Young, the first three months of this year constituted the best performing first quarter since 2011. Globally, 239 deals (up 47.0% year over year) raised $44.3 billion (up 82.0%) in the first quarter.
IPO Boom in the US
Per Renaissance Capital, there were 64 U.S. IPOs during the first quarter, which raised $10.6 billion. This figure slightly differs from Ernst & Young, according to which 68 deals in the U.S. raised $11.6 billion (36.0% year-over-year increase).
While the difference between the figures is immaterial, the key growth factors that are driving the boom are worth noting. Continued low interest rate and higher deal activity from private equity and venture capital firms (72.0% of total deals) are primarily responsible for this stupendous growth.
According to Ernst & Young, the New York Stock Exchange raised $8.6 billion from 25 deals, the highest among the top six global exchanges. As per The Wall Street Journal, there were 74 new listings on Nasdaq (NDAQ - Analyst Report) including 45 IPOs during the quarter. Most interestingly, 98% of Nasdaq IPOs filed as “emerging growth companies” under the JOBS Act.
The boom in this year’s U.S. IPOs has also been attributed to the JOBS Act. The Act allows the companies with revenues of less than $1.0 billion in its last fiscal year to keep their IPO documents private. The law is quite lenient toward disclosures, which is also a major attraction for less profitable stocks.
According to Renaissance Capital, 66.0% of the first-quarter IPOs are unprofitable companies. However, this has not deterred investors from joining the boom as the average IPO stock is up 24.6% from its offer price. The S&P 500 increased 2.2% during the same period.
The three most trending sectors in the U.S. were healthcare (which raised $2.2 billion from 35 deals), technology ($2.0 billion from 11 deals) and energy ($2.5 billion from 18 deals).
Upcoming Notable IPOs
The IPO pipeline remains significantly strong as more than 1000 companies have registered worldwide. Start-ups as well as old companies are rushing in to join the bandwagon and cash in on the IPO frenzy. Although the fundamentals may not always support the lofty valuations, investors are expected to aggressively bid for them in search of the next Auspex Pharmaceuticals (ASPX) or Facebook (FB - Analyst Report).
Ernst & Young believes that the U.S. trend remains healthy as registrations soared 124.0% in the first quarter. It expects both healthcare and technology sectors to maintain momentum, going forward. We identify three notable stocks that have already filed for IPO:
IMS Health Holdings (IMS - Snapshot Report) – IMS Health provides information, technology and services to the healthcare industry worldwide. The company processes more than 45 billion transactions annually and reported revenues of $2.54 billion in 2013. IMS Health plans to raise $1.27 billion by offering 65 million shares at a price range of $18.00 to $21.00, which puts its valuation at approximately $6.63 billion.
Ally Financial (ALLY) – Auto lender Ally Financial was bailed out by the U.S. Government in 2008, when it was a subsidiary of General Motors (GM - Analyst Report). Per Bloomberg, the upcoming IPO is expected to fetch the Treasury Department $2.7 billion, as it reduces its stake to 17% by selling 95 million shares for $25.00–$28.00 per share. The company earned net income of $361.0 million in 2013.
Weibo Corp (WB) – SINA’s (SINA - Analyst Report) subsidiary Weibo is well known as China’s Twitter (TWTR - Analyst Report). According to its latest amended F-1 filing, the company selected Nasdaq for filing its IPO. Weibo has approximately 129 million monthly active users (MAUs), of which 70.0% are on mobile MAUs. The company’s revenues increased significantly from $65.9 million in 2012 to $188.3 million in 2013.
Highly anticipated filings from the likes of Alibaba, Dropbox, Spotify, Go Daddy and Univision are expected to maintain the IPO momentum for the remainder of 2014.