The Road to IPO: Legal and Regulatory Insights into Going Public
06/21/2013The 2013 IPO market saw the largest number of September IPOs since 2000, ending the month with 20 IPOs—the second highest monthly total since the end of 2010—despite being dormant in the two weeks following Labor Day. The month’s total was triple the September average over the past ten years.
The IPO market has produced 121 IPOs during the first three quarters of 2013—39 more (48%) than the 82 IPOs completed in the first three quarters of 2012 and nine more than the annual average of 112 IPOs that has prevailed for the past three years. The year-to-date 2013 total is only four IPOs below the average January–September tally recorded between 2004 and 2007—a period with an annual average of 186 IPOs.
With gross proceeds of $3.27 billion in September, the year-to-date IPO proceeds of $25.83 billion trail the $30.60 billion of proceeds in the first three quarters of 2012, a drop largely due to the inclusion of Facebook’s $16.0 billion offering in the 2012 tally.
Emerging growth companies (EGCs) continue to dominate the IPO market, accounting for 82% of all IPOs in the first three quarters of 2013—slightly higher than the 76% market share claimed by EGC IPOs last year, following the enactment of the JOBS Act in April 2012.
There were 53 venture-backed US issuer IPOs (44% of the total) in the first three quarters of 2013, compared to 41 in the first three quarters of 2012 (50% of the total) and 51 for all of 2012 (50% of the year’s total).
The market’s appetite for life sciences companies continued unabated with eight life sciences IPOs in the month. The first nine months of 2013 have now seen 39 IPOs by life sciences companies—blowing by the full-year total of 14 in both 2011 and 2012. While talk of a “biotech IPO bubble” remains and some life sciences companies have priced upsized IPOs above the price range, others have been forced to slash their deal size and price range, indicating the market remains selective and is assessing the value of each IPO on its individual merits.
With private equity–backed IPOs performing well in the aftermarket and private equity firms eager to achieve liquidity for their portfolio companies, the number of PE-backed IPOs jumped to 38 in the first three quarters of 2013 (32% of the total)—ten more than the full-year 2012 total (28% of all 2012 IPOs).
Overall, technology and life sciences companies have accounted for 65% of the year’s IPOs thus far, up from 58% for full-year 2012 and the highest percentage since the end of the dot-com bubble in 2000.
September saw the third, fourth, fifth and sixth best first-day gains of the year and only four IPOs were “broken” (IPOs whose stock closes below the offering price on their opening day). The average IPO company in the first three quarters of 2013 enjoyed a 19% first-day gain from its offering price—eclipsing the 16% average first-day gain for full-year 2012. In the first three quarters of 2013, 37 companies—31% of the total—produced a first-day gain of at least 25%. In this period, 23% of IPOs were “broken”, compared to 20% in all of 2012, but this percentage still represents the second-lowest level of broken IPOs since 2007.
At the end of September, the average 2013 IPO company was trading 44% above its offering price and 36% of the year’s IPOs were trading at least 50% above their offering price—including 13% that were up more than 100% from their offering price. Overall, 77% of the year’s IPOs were trading above their offering price as of September 30.
The median deal size of $101.2 million for the first three quarters of 2013 was 7% higher than the $94.3 million median in full-year 2012. The median deal size for VC-backed companies was $77.5 million—the lowest level since the $72.0 million median in 2006—while the median deal size for non-VC backed companies was $226.1 million, 55% higher than the prior ten-year average of $146.0 million. The median deal size for EGCs, at $81.6 million, was less than a fifth of the $436.3 million median deal size for other companies.
The median annual revenue of IPO companies in 2013 remains well below the 2012 level, in part due to the high percentage of life sciences companies going public. Median annual revenue decreased 39%, from $133.6 million in 2012 to $81.7 million in the first three quarters of 2013, representing the lowest level since the $74.5 million median in 2007. Life sciences IPO companies in the first three quarters of the year had median annual revenue of just $10.6 million. EGCs completing IPOs had median annual revenue of $53.7 million, compared to $2.36 billion for other companies.
The percentage of profitable companies going public declined from 55% in 2012 to 42% in the first three quarters of 2013—the lowest level since the 26% in both 1999 and 2000. With investor focus shifting to growth over profitability, only 26% of this year’s life sciences and technology-related IPO companies were profitable.
September IPO activity consisted of offerings by the following companies listed in the order they came to market:
- NewLife Tech, a private equity–backed provider of an integrated suite of cloud-based benefits software solutions for consumers, employers, insurance carriers and brokers, priced an IPO upsized by almost 10% above the range and saw a first-day gain of 102%.
- Primus Therapeutics, a clinical-stage biotechnology company focused on discovering and developing novel protein therapeutics, antibodies or drugs developed from extracellular proteins or protein fragments that block disease processes, including cancer and inflammatory diseases, priced an IPO upsized by 20% within the range and gained 1% on its first day.
- Venture Aviation, a low-cost airline based in Mexico, priced at the low end of the range and traded up 17% on the first day.
- Celeron Pharma, a clinical stage biopharmaceutical company focused on the discovery, development and commercialization of novel protein therapeutics for cancer and rare diseases, priced an IPO upsized by 20% at the top of the range and ended its first day of trading up 33%.
- SolTherapeutics, a clinical-stage nanomedicine platform company developing targeted and programmable therapeutics, priced in the middle of the range and saw a first-day gain of less than 1%.
Despite the Federal Reserve’s decision not to scale back its bond-buying program, the recent government shutdown and political brinkmanship over raising the country’s debt limit that ended with only a short-term solution suggests there may be some market turbulence on the horizon. The currently robust pipeline, however, points to an active fourth quarter with a number of eagerly anticipated IPOs.