US IPO market slows in first half of 2015 as private companies continue to grow; strong activity in June indicates momentum for Q3.

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Jun 24, 2015, 08:00 ET

NEW YORK, June 24, 2015 /PRNewswire/ -- US IPO activity began to pick up steam in the second quarter of 2015 after a slow first quarter. For 2Q US markets saw 66 deals with $13.7b in proceeds this quarter, an 88.6% increase in deals and 125% increase in capital raised over Q1, according to the quarterly EY Global IPO Trends: 2015 Q2.

Despite this increase, the total number of deals and proceeds in the first half of 2015 was significantly down from the first half of last year, as US listings have been unable to keep pace with 2014's aggressive results, the busiest year since 2000. In the first six months of 2015, 101 IPOs were recorded in the US, raising proceeds of $19.7b. Compared to the first half of 2014, this was a 36% decrease in the number of deals and a 44% decrease by proceeds, from 158 deals with a value of $35.4 billion.

Jackie Kelley, EY Global and Americas IPO Markets Leader said: "We see that companies are carefully evaluating their options for growth, as well as the possibilities to deliver a greater return to their shareholders. Multi-track strategies have become increasingly prominent, as companies have their choice between an IPO, M&A, and private capital. In particular, we've seen a growing appetite for – and availability of – private financing, which has significantly impacted the flow of IPOs this year, as companies have been able to remain private longer."

While the first half has been sluggish, the pipeline of IPO activity is robust and refilling across a range of sectors. Investor confidence is strong and economic fundamentals are improving, all factors that suggest IPO activity is set to increase, which could happen toward the end of 2H15, after the traditionally quiet third quarter.

Financial sponsors feature prominently

Financial sponsors continue to feature prominently in the US IPO landscape, with a high percentage of VC- and PE-backed deals this quarter. They accounted for 64% of deals by number and 59% by value. In terms of the number of deals, 35% of IPOs were PE-backed and 39% VC-backed. Additionally, six of the top 10 deals in the US were PE- or VC-backed in Q2.

Looking forward, PE- and VC-backed companies will continue to feed the IPO pipeline but many will wait longer for exits. Particularly with technology companies, the combination of the high level of interest to invest in and acquire technology businesses, along with the range of funding choices available to companies today, will deplete the pool of VC- and PE-backed businesses looking for a public exit.

"Many companies, especially in the technology sector, are taking advantage of the vibrant capital environment to defer public listings until a later stage of development. This gives them an opportunity to be better placed to deliver consistent performance for investors," said Kelley. "While these actions may reduce the flow of IPOs right now, for the longer term, we do view this development of a broader funding ecosystem as a positive opportunity for both companies and investors."

Health care remains strong, but technology and energy lag

Similar to 2014, there was a strong showing from the health care sector in the first half of 2015, with a steady stream of smaller deals, 40 in total for 2015.

Technology deals, however, are lagging behind 2014 in the US, with only 15 to date in 2015, compared to 47 for the same time period last year. The shift in this sector can be attributed to the ongoing shift in the nature of financial sponsorship, as late-stage growth companies are increasingly attracting private capital and thus delaying an IPO until the company matures more. The average age of companies across all sectors in the IPO pipeline is 13 compared to 9 years at this point in 2014.¹

The energy sector also saw a decline from its 29 IPOs last year, with only 7 so far in 2015; however, this sector is building. "Falling oil prices in late 2014 and early 2015 are the main reason for the slowdown in this sector," said Kelley. "The decline in prices has had a negative impact on investor sentiment, and ultimately, the industry. We're beginning to see prices recover, which should stabilize the sentiment of investors."

High-value listings return

The largest deal this quarter was Tallgrass Energy GP LP, which raised $1.4 billion, just slightly more than the largest listing in Q1. The next four deals that round out the top five this quarter wrap up at just over $700 million.

Issuer Name	Sector	Proceeds US$m
Tallgrass Energy GP LP	Energy and Power	1,384.0
Univar Inc.²	Materials	770.0
TransUnion	Consumer Products and Services	747.5
Fitbit Inc.	Industrials	732.0
EQT GP Holdings LP	Energy and Power	714.2

Looking at how these deals ranked globally, the market saw US exchanges produce two top 20 global deals in the first half of 2015: Tallgrass Energy GP LP, and Columbia Pipeline Partners LP IPO, which raised $1.2 billion in Q1.

Impact on the Exchanges

As a result of the decline in US IPO activity, NASDAQ is now the third busiest exchange globally and NYSE the fourth for 2015, down from their first and second rakings in 2014. Shenzhen Stock Exchange and Shanghai Stock Exchange are number one and two in terms of number of deals.

Notes to editors

About the data

Analysis included on this press release includes all deals listed up to mid-June and EY's expectation of deals that will close in the rest of the month. Data sourced from Dealogic as of 16 June 2015. January 2015 through June 2015 (i.e., 2Q15 YTD) IPO activity is based on priced IPOs as of 16 June and expected IPOs by the end of June. M&A data is sourced from Dealogic as of 17 June 2015.

About EY's IPO offerings
EY firms are leaders in helping to take companies public worldwide. With decades of experience our global network is dedicated to serving market leaders and helping businesses evaluate the pros and cons of an IPO. We demystify the process by offering IPO readiness assessments, IPO preparation, project management and execution services, all of which help prepare you for life in the public spotlight. Our EY Global IPO Center of Excellence is a virtual hub which provides access to our IPO knowledge, tools, thought leadership and contacts from around the world in one easy-to-use source.

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¹ Data sourced from S&P Capital IQ and EY research.

² As of June16, 2015, Univar Inc. was expected to raise US$506m. On June 17, the company priced its IPO with proceeds of US$ 770m. Univar's updated IPO proceeds are reflected in this table.

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