U.S. IPOs gain momentum after Labor Day: Q3 2016 IPO watch

October 3, 2016


Could there be good news ahead for new issuers?

By Derek Thomson, Capital Markets Research Leader, PwC

Continued low interest rates amid a low GDP and inflation environment again drove investors towards equity markets in their search for returns. Companies took advantage of low volatility and increasing investor interest during the quarter to get deals done as the IPO market saw increased activity in July and September with a traditional summer slowdown in August. This helped make Q3 2016 the strongest quarter for IPOs in 2016, though IPO activity and proceeds still fell short of the levels seen during the same period in prior years.

In Q3 2016, there were 40 IPOs raising $6.6 billion compared to 45 IPOs raising $7.3 billion in Q3 2015 and 68 IPOs raising $38.1 billion in Q3 2014 including Alibaba’s IPO. A slow August contributed to the decline in overall quarterly activity, with the influx of deals in September indicating that investor appetite for new issuances is strong.

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Healthy fundamentals in Q3 2016

  • Diverse Industry mix: While the healthcare sector continued to lead in IPO activity for the 11th straight quarter, the technology and financial sectors were also prevalent with 11 IPOs each, with technology IPOs having their most active quarter since Q2 2015. The energy sector also returned to the IPO market in Q3 for the first time in more than a year with the first energy IPO since August 2015.
  • Strong aftermarket performance: IPO after-market returns outperformed the broader U.S. stock market return for the third straight quarter. Q3 IPOs rose 36% on average compared to the S&P 500 which increased 3% in Q3 and 6% YTD. September’s IPOs were particularly well received with 17 of the 18 debuts trading above offer price.
  • Robust equity follow-on market: Q3 2016 was the best quarter for follow-ons since Q2 2015 driven by the healthcare and energy sectors. With 168 deals raising $43.4 billion, issuance was up 21% compared to Q3 2015 and up 50% in proceeds raised. There were 51 healthcare and 31 energy follow-ons, representing 30% and 18% of all follow-on activity, respectively.
  • Active high-yield debt market: Q3 2016 displayed the strongest August for high-yield debt since 2012 and the market maintained the previous quarter’s strong pace with 106 high-yield debt issuances. While proceeds raised dipped slightly to $62.0 billion compared to the $82.8 billion raised in Q2 2016, the quarter was still up over 50% from the $39.8 billion raised in Q3 2015, when the market first began to slow. In line with Q2 2016, 70% of Q3 2016 high-yield proceeds were for refinancing.

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Q4 2016 Outlook: Investors Monitor Interest Rate Moves and Election Results

Heading into the final quarter, investors will continue to closely monitor global macroeconomic growth, the Fed’s decisions on interest rates and associated indicators such as the health of the U.S. labor market and inflation. We also expect the U.S. presidential election will take some focus away from the IPO market, which generally sees a lull in activity around elections.

For more of our insights on the capital markets and IPOs, visit: www.pwc.com/us/ipo >

 

(As of Sep 30, 2016)


Contacts

Bob Saada

US Deals Leader Tel: +1 (646) 471-7219 Email: bob.d.saada@pwc.com

Curt Moldenhauer

US Deals Solutions Leader Tel: +1 (408) 817 5726 Email: curt.moldenhauer@pwc.com