April 8, 2019
By Derek Thomson, Capital Markets Research Leader
US IPO markets in the first quarter of 2019 priced 30 IPOs, raising $7.6 billion, slightly below the Q1 average for the past 5 years of 35 IPOs raising $9 billion. This decline was primarily due to the Government shutdown lasting 3 weeks into January, coupled with broader investor uncertainty driven by policy debates around trade, Brexit and the appearance of slowing leading economic indicators, which could reduce GDP growth going forward.
Upcoming high-profile IPOs with strong growth are scheduled to hit the road in the second quarter, along with a number of other IPOs in the pipeline. Investor demand for these IPOs is somewhat disconnected to a possible slowdown in macro growth, following the best quarter the S&P had since Q3’09.
SPACs dethrone Pharma as leading sector
SPAC had the highest number of IPOs, and accounted for half of all first quarter IPOs, pricing 15 IPOs raising $3 billion. This marks the highest quarterly volume of SPACs in the last 12 years. This quarter Pharma and Life Sciences came a solid second place with 9 IPOs with a total volume of $1 billion, the first quarter since Q1’17 that Pharma and Life Sciences have not lead by volume.
What to watch
Recently the market has been impacted by yield curve concerns, but the Fed’s most serious concern is that inflation continues to undershoot its target. The Fed kept rates on hold in March and is now expecting no more rate hikes for the year. European growth is weaker, a trade deal with China might not involve tariff reductions, Brexit has been delayed, and some major emerging markets are struggling. However, it is expected that most of those risks will go away by the second half of the year.
The window to tap public markets with IPOs continues to remain open. In 2019, expect the Pharma Life Sciences sector to lead the broader IPO market and the Technology Media and Telecom sector to continue to deliver large new entrants. Despite the current environment of investor uncertainty due to fears of a weakening economy, next quarter could see a large uptick in IPOs. As a result of the Government shutdown, IPO activity was hampered this quarter causing in back up in IPOs waiting to price.
Read the full Q1 2019 Capitals Markets Watch for additional performance trends.
Please note: IPOs with deal values that are less than $25mm, best efforts offerings, oil and gas royalty trusts, business development companies, pricing on OTC Bulletin Board and OTC Pink Sheets are excluded.