EY Report Suggests Improving Conditions for U.S. IPOs in 2018

Xconomy National — 

U.S. IPO activity has been ticking up, with 36 IPOs raising more than $12.7 billion in the United States so far this year, according to data released Monday by EY, the global consulting and accounting firm.

Although there are still several days remaining in the first quarter of 2018, EY reports the number of first-quarter IPOs is 44 percent higher than the 25 offerings that occurred in the first quarter of 2017. The $12.7 billion total raised was almost 17 percent higher than the $10.9 billion raised in IPOs nationwide in the same quarter last year.

The increase is encouraging because the first quarter is usually the slowest period for IPO activity, said Tim Holl, a partner in EY’s San Diego office. He added it was the highest number of first-quarter IPOs since 2014, according to EY data, and the most IPO capital raised in the first-quarter since 2015.

Tim Holl 2018 EY

EY San Diego Partner Tim Holl (EY photo used with permission)

Holl said he expects the pace of IPO activity to continue to ramp up in the second quarter, which in recent years has been the most-active quarter for U.S. IPO activity.

In a report released late Monday, EY highlighted its expectations for IPOs to come in 2018:

—Despite market volatility in early February, trading has stabilized in recent weeks on the Nasdaq and NYSE exchanges. EY said it sees signs of continued investor appetite for IPOs.

—So far, 28 companies have publicly submitted S-1 regulatory filings, including several high-profile technology issuers. Among the latter is Spotify, the online music platform that is expected to price its shares next week. With shares of the cloud-storage company Dropbox surging following its IPO Friday, EY suggests there could be a wave of “unicorn” IPOs—companies with valuations of at least one billion dollars— through the remainder of 2018.

—Interest in healthcare IPOs remains high. Holl noted that 11 of the first-quarter’s 36 IPOs were life science companies, including Menlo Therapeutics (NASDAQ: MNLO), Armo Biosciences (NASDAQ: ARMO), and Solid Biosciences (NASDAQ: SLDB).

—Recovering oil prices will support more energy-related IPOs. Six of the first-quarter IPOs were energy-related.

—Cross-border IPOs are on the rise, and EY reports more on the way. For example, Pag Seguro Digital (NYSE: PAGS), a Brazilian payment processing tech company, raised $2.3 billion in its IPO on the New York Stock Exchange, according to EY. Chinese issuers also are targeting U.S. listings, EY said.

—EY warned, however, that the IPO calendar in 2018 could wind down before the year ends, as issuers may scramble to go public before the mid-term Congressional elections in November.