Activity in the US IPO market has increased over the last few weeks with a number of high profile deals in the pipeline. JP Morgan’s head of global equity capital markets, Liz Myers, has been talking about her hopes for the IPO market in 2017. It seems as though there are many reasons to be cheerful but why is JP Morgan forecasting a buoyant US IPO market?
Change in sentiment
While it is still relatively early days in 2017, initial figures suggest this is the best start to a year for the IPO market since 2014. At this moment in time there are 12 IPOs in the pipeline which compares to less than 100 throughout the whole of 2016. The average figure is around 200 IPOs per annum and there are high hopes we will return to somewhere near that figure over the next 12 months.
Sometimes there is increased interest from investors or issuing companies but in what is becoming a perfect storm for the IPO market, we have seen significant interest from both parties this year so far. So, if we have companies looking to raise capital and investors looking for new investments, surely this is a match made in heaven?
Recent IPOs
It is also interesting to look back at recent IPOs and the figures for 2016 make for good reading. An above average 70% of IPOs issued in 2016 are trading above their initial float price which compares to just 52% at the start of 2016. Obviously past performance is no guarantee of future performance but this seems to indicate IPO prices were on the whole correct in 2016 and there was investor appetite after the initial issue.
IPO prices have on the whole been relatively strong during 2017 so far with 4 out of 9 deals priced either at the top end of their IPO range or above. This is a perfect example of investor appetite especially when you bear in mind two out of the six IPOs announced in the first three months of 2016 were forced to reduce their price below the initial range.
Private equity selling down
There is no better time to reduce your exposure to an unlisted company than when markets are flying high and investor appetite for IPOs is following suit. So, while private equity companies have been extremely active over the last few years, investing large amount of money in off market transactions, they are now looking to reduce their exposure and in many cases bank a significant profit. While some may see this as a sign that markets could be “topping out” the fact is that many of these private equity companies will have invested in forthcoming IPOs at a fraction of the intended float price. So, can we really blame them for reducing their exposure and banking a profit after taking what can be significant risks?
Positive, positive, positive
It will be interesting to see how long this positive trend lasts especially when Donald Trump seems intent on upsetting an array of foreign allies. He has also instigated a number of internal issues, one such being his travel ban, so we certainly know that it will not be plain sailing with President Trump. However, for whatever reason stock markets and investors appear unperturbed about none investment/economy issues, instead pushing markets to new highs and encouraging IPOs.