After a long dry spell, including a 2008 that featured just 43 initial public offerings and a 2009 that began with a single offering in the first quarter, the IPO market is poised for recovery this year. The newly released Ernst & Young IPO Pipeline report found that 53 companies entered registration in the fourth quarter of 2009, the most new registrants in two years.
The resurgent interest in the equity markets is coming from a wide range of companies, says Maria Pinelli, Americas Director for Strategic Growth Markets at Ernst & Young. The technology sector boasts the highest number of new registrants, but diversified industrial businesses, pharmaceutical companies, and retail and wholesale concerns are all represented on the list of new registrations. Companies based outside the United States also filed, with registrations from firms in China, The Netherlands, Thailand, and the Cayman Islands.
While the average fund-raising goal of the new registrants is $190 million — a number Pinelli says is in line with the average raise in recent years — many of the companies are smaller businesses. Twenty-four are seeking to raise $100 million or less. In addition to small, entrepreneurial companies, “We are also seeing a lot of interest in spin-outs of profitable, steady business units that are ripe for going to market,” says Pinelli.
Although momentum in the equity markets built throughout 2009, there were some mixed signals at end of the year as multiple IPOs were pulled in December due to lack of investor interest. Five of the six deals that did hit the market in December priced poorly, and a third of all deals in the fourth quarter ended their first day of trading below their offering price.
Some of the choppiness has carried over into 2010. The first postponement of the year came last week, as Terreno Realty pushed back its scheduled $200 million IPO. Daqo New Energy, a venture-backed company, followed suit later in the week. This week, Ironwood Pharmaceuticals, another venture-backed firm, made its debut on the Nasdaq Global Market priced at $11.25, well below its expected offering range of $14 to $16.
Still, Pinelli remains optimistic. Two solid quarters of market performance and the resulting improved investor confidence should attract more offerings, she believes. “In our own client base, we have definitely seen an uptick of interest in the capital markets,” she says. “We performed more than 80 IPO readiness studies for clients in the past fiscal year and have more in the queue.” Companies may be ready for the IPO market to return, and private equity and venture investors certainly are. But whether the market is ready for them remains uncertain.