2014 IPO Outlook: Another blockbuster year for IPOs

According to the results of the independent survey, nearly half (49%) of the respondents believe that the IPO market in the coming year will be stronger than the previous one

January 02, 2014 9:49 IST | India Infoline News Service
2014 is expected to be another record-breaking year for the U.S. IPO market, according to the Fourth Annual IPO Survey of U.S. transaction attorneys conducted by KCSA Strategic Communications, a leading integrated communications firm specializing in financial public relations, investor relations, social media and creative marketing services.

KCSA conducted in-depth interviews with nearly 50 securities attorneys whose firms advised on 40% of the initial public offerings listed on major US stock exchanges during 2013.

According to the results of the independent survey, nearly half (49%) of the respondents believe that the IPO market in the coming year will be stronger than the previous one.  The remaining respondents think the IPO market in 2014 will be as strong as 2013.

The perceived drivers for improvement include stabilization of the U.S. economy and capital markets (45%), monetary and fiscal policy (30%) and increasing investor demand (25%).

Not only was 2013 the strongest IPO market in the last decade in terms of both IPO proceeds and number of deals, but according to those surveyed, senior executives of the companies that went public were unanimously satisfied with the success of their IPO. Company expectations were based on listing price, aftermarket performance, investor demand, and total deal value.

According to Jeff Corbin, CEO of KCSA Strategic Communications, "2013 was the IPO market turnaround that the investor community has been waiting for since before the financial crisis began. The market has seen strength from nearly every sector including buzz worthy social media companies like Twitter, post-LBO blockbusters such as Hilton, a resurgence of small and mid-cap IPOs and a steady drumbeat of private equity and venture-backed listings. Continued high company valuations and stable market conditions have investors anticipating an active IPO market in 2014."

Social media will continue to be a source of IPO activity in the coming year. The attorneys surveyed almost unanimously agreed that Twitter was both the most anticipated IPO in 2013 and was over-hyped.  But according to 97 percent of those surveyed, the social media bubble has not burst and 60 percent think that Facebook and Twitter's aftermarket performance will have a positive impact on the valuation of other social media companies considering reaching out to the capital markets by way of a public listing. When asked to reference the most anticipated IPO of 2014, 68 percent were not sure but some mentioned Dropbox, Rovio, Foursquare, Outbrain and Alibaba.

According to Colin Diamond, partner, White & Case LLP, "While there is still buzz around upcoming social media company IPOs, it is anticipated that the IPO market as a whole will remain stabilized with a robust pipeline of quality companies with proven business models and revenue streams regardless of industry." 

When asked what industries will have the most IPOs in 2014, respondents said: Technology (44%), Energy (8%), Healthcare (29%), Retail (4%) and Financial Services (15%).

The JOBS Act, which was passed in 2012, has also had a positive impact on pre-IPO companies, with 86 percent of the attorneys surveyed considering the regulation as a success in terms of making it easier for smaller companies to access public markets. In addition, 74 percent are seeing an increased number of IPO filings as a result of the JOBS act.  According to those surveyed, the advantages for companies under the JOBS Act include the ability to file without public scrutiny (31%), testing the market's appetite (22%), reduced costs (17%), crowdfunding capabilities (14%), and reduced financial requirements (11%).

"The JOBS Act has certainly eased some of the regulatory filing requirements of the IPO process. While we are seeing an increased number of companies taking advantage of the confidential filing system afforded by the regulation, we think the increase in number of filings is largely due to the overall strength of the IPO market, not companies which found the pre-JOBS Act IPO process prohibitive," said Michael Kaplan, co-head of the capital markets practice at Davis Polk & Wardwell LLP.

Private equity-backed companies are also expected to continue to dominate the IPO landscape in 2014, as 88 percent of those surveyed think that the number of such IPOs will be the same or greater when compared with 2013.

"A wide range of financial sponsors are pursuing IPOs for their portfolio companies as a component of their ultimate exit strategy for these companies. We anticipate the pipeline of private equity-backed IPOs to remain robust for so long as broader market strength and stability continues to afford access and support attractive valuations," commented Joshua Ford Bonnie, partner, Simpson Thacher & Bartlett LLP.

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