The market for initial public offerings in the United States is hopping, according to a quarterly survey by PwC. The firm’s third quarter IPO Watch found that overall IPO volume in the first nine months of this year surpassed total volume in 2012. Activity jumped by 110 percent — to 63 IPOS — year-over-year, and funds raised last quarter climbed 76 percent.
PwC predicts that IPOs will continue to pile up as high-profile companies (like Twitter, which filed its S-1 statement with the Securities and Exchange Commission on Thursday) go public. As of October 1, there were 116 U.S. companies in the IPO pipeline, hoping to raise aggregate proceeds of at least $37 billion, according to a report from Renaissance Capital. Seventy-six of those firms are considered “active,” meaning they have filed an amendment to their S-1 in the last 90 days. Twitter’s $1 billion offering will likely be the third largest in the United States in 2013.
The PwC survey found that 92 percent of this year’s third quarter IPOs were filed by emerging growth companies, defined by the JOBS Act as firms with total annual gross revenues of less than $1 billion (indexed for inflation) in their most recent fiscal year. Under the law, these firms are eligible to file their registration statements confidentially with the Securities and Exchange Commission — and most of them did.
“Companies absolutely love this confidential filing option, because it allows them to get the clock started from a regulatory review standpoint in a private manner,” says Neil Dhar, partner in PwC’s U.S. capital markets practice. “They can go through all the regulatory reviews, get themselves ready and then only disclose publicly about a month before the IPO [prices].” The confidential filing gives emerging growth companies the freedom to explore different options to access capital, including a public offering, a sale or some other fundraising effort, Dhar says.
The confidential filing option is particularly useful for companies in the current market, which has shorter windows this year due to volatility, he says. “Windows now literally open and shut in weeks, versus months or years,” Dhar says. “In June, we had no IPOs in the first two weeks and then 20 in the last two weeks. The same thing happened in September.”
Since the SEC review process takes about three to four months, the confidentiality option allows companies that haven’t decided whether to go public to “get the clock started and their document reviewed, so if the markets are open, they can jump in quickly,” Dhar says. In the past, he says, “companies really only filed when they were near certain they were going public because it was a public disclosure. Your document was open for your competitors and the rest of the world to see.”
Twitter is one of the companies that took advantage of confidential filing. But unlike many other companies that file privately, the micro-blogging site always intended to go public; it just hoped to squelch the media frenzy around its anticipated IPO by revealing its information on (closer to) its own terms. Indeed, the company tweeted its intention to go public in mid-September, well before it filed its public S-1.
Initial public offerings in the United States raised $11.8 billion in total in the third quarter. The health care and technology sectors led the activity.
Globally, the IPO market rose 79 percent year-over-year in the third quarter, according to Renaissance Capital. But, unlike in the United States, global IPO proceeds dropped nearly 10 percent year-over-year, “due to the absence of multi-billion dollar IPOs from many emerging markets, which are facing capital outflows from an economic shutdown,” the report says.
For investors, betting on IPOs was profitable last quarter. Global IPO returns jumped 24.4 percent on average, led by North America. Renaissance Capital analysts predict the IPO market will be “extremely active” in the fourth quarter, as they expect large companies such as Chinese e-commerce firm Alibaba Group and British postal service Royal Mail to file.