Report: IPO Activity Picking Back Up Following Quiet, Volatile Q3

Xconomy San Diego — 

While the headlines may be dominated by news of WeWork putting its IPO on hold after reports about its questionable corporate governance, the overall initial public offering market is doing just fine. So far, 127 US companies went public in the first nine months of the year and the amount they raised already topped three of the past four years.

Collectively these businesses raised about $44 billion in their debuts, topping the $34 billion, $21 billion, and $40 billion raised in 2015, 2016, and 2017, respectively. The total for the first three quarters of 2019 was about $8 billion shy of the total raised last year, however, when 209 US companies entered the public markets, according to a new report by consultancy Ernst & Young (EY).

The companies that went public in 2019—led by the healthcare and technology sectors—have done so amid a wild geopolitical environment, substantial market volatility and, although it may be difficult to recall given all that’s happened since, a temporary first-quarter shutdown of the US Securities and Exchange Commission, which oversees the securities markets.

In the past quarter, 39 companies went public, raising nearly $12 billion, according to EY. That’s 30 percent fewer deals than in the same quarter of the year prior, and a 6 percent lower dollar amount. Two sectors had more than 10 companies that went public during the quarter: healthcare IPOs, of which there were 13 in total, raised $3.9 billion, and 12 tech companies went public, raising $4.4 billion.

In the second quarter of the year, 66 companies went public—the second most to do so in that quarter since 2015, when 72 did so.

In addition to a slowdown in the third quarter, which is typical, stints of market volatility contributed to the reduction in deals and proceeds compared to last year, Tim Holl, an audit partner at EY in San Diego, said in a phone interview with Xconomy.

Still, Holl said the firm is seeing a lot of activity among companies considering an IPO, even as the geopolitical environment in the US and in other countries to which it is closely tied through trade, including China and the UK, remains uncertain.

He anticipates a busier fourth quarter of this year and first quarter of 2020 as companies looking to tap the public markets hurry to do so ahead of the presidential election, the lead-up to which is likely to spur market volatility.

And while some high-profile IPOs by tech unicorns—the startup ecosystem’s term for the once-rare private companies valued at $1 billion or more—haven’t lived up to expectations, overall, the average first-day return this year was 19 percent, and the average performance of shares since IPO, including all companies that started trading as of Sept. 18, was up 13.9 percent.

It’s that post-IPO performance and the market’s overall performance that has companies continuing to add their names to the queue of IPO candidates—and prepping to join the public markets in the coming months, Holl said.

These five companies have raised, or are expected to raise, the top IPO proceeds this quarter:

Largest Q3 IPOs:
SmileDirectClub: $1.3B
Peloton Interactive: $1.1B*
Dynatrace: $655M
Datadog: $648M
Endeavor Group: $600M*
*Transactions anticipated to be completed by month’s end. Proceeds estimated using midpoint of proposed price range as of Sept. 19.
Source: EY Quarterly IPO Trends Report 2019 Q3

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