BDO CAPITAL MARKETS PRACTICE BDO USA is a valued business advisor to businesses making public securities offerings. The firm works with a wide variety of clients, ranging from entrepreneurial businesses to multinational Fortune 500 corporations, on a myriad of accounting, tax and other financial issues. For more information on BDO’s Capital Markets services, please contact one of the regional leaders below: CONTACT: JAY DUKE, Dallas 214-665-0607 [email protected]LEE DURAN, San Diego 858-431-3410 [email protected]BRIAN ECCLESTON, New York 212-885-8220 [email protected]LEE GRAUL, Chicago 312-616-4667 [email protected]WENDY HAMBLETON, Chicago 312-616-4657 [email protected]CHRISTOPHER TOWER, Orange County 714-668-7320 [email protected]WWW.BDO.COM 2012 was a year of hills and valleys for the U.S. IPO market. IPO activity was humming at peak levels through April (58 deals), before the European debt crisis, negative U.S. economic data and the problematic Facebook IPO brought offering activity to a virtual halt. Activity began to pick up in July, only to tail off in mid-August and September as deal-makers took their traditional late summer holiday. After a burst of activity in October (19 deals), uncertainty surrounding the “fiscal cliff” led to the second slowest end of the year (just 10 deals in Nov/ Dec) in the past decade (only 1 deal in 2008).* Read more *Renaissance Capital is the source of all historical data related to number and size of U.S. IPOs Although overall results showed a slight improvement over 2011, the inconsistency of the market and the drop in proceeds absent the Facebook IPO, give the capital markets community clear reason for concern as we enter 2013. 2013 FORECAST According to the 2013 BDO IPO Outlook survey, capital markets executives at leading investment banks are projecting measured growth in initial public offerings (IPOs) on U.S. exchanges in 2013. Exactly half predict an increase in U.S. IPOs in the coming year, although only 8 percent describe the increase as substantial, while almost one-third (31%) forecast activity as flat compared with 2012. Just 18 percent expect a decrease in offerings on domestic exchanges. Overall, bankers predict a 6 percent increase in the number of U.S. IPOs in 2013. They anticipate these offerings will average $250 million, which projects to $34 billion in total IPO proceeds on U.S. exchanges.
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BDO USA CApitAl MArketS prACtiCeBDO USA is a valued business advisor to businesses making a public securities offering. The firm works with a wide variety of clients, ranging from multinational Fortune 500 corporations to more entrepreneurial businesses, on a myriad of accounting, tax and other financial issues.
BDO CApitAl MArketS prACtiCeBDO USA is a valued business advisor to businesses making public securities offerings. The firm works with a wide variety of clients, ranging from entrepreneurial businesses to multinational Fortune 500 corporations, on a myriad of accounting, tax and other financial issues.
For more information on BDO’s Capital Markets services, please contact one of the regional leaders below:
2012 was a year of hills and valleys for the U.S. IPO market. IPO activity was humming at peak levels through April (58 deals), before the European debt
crisis, negative U.S. economic data and the problematic Facebook IPO brought offering activity to a virtual halt. Activity began to pick up in July, only to tail off in mid-August and September as deal-makers took their traditional late summer holiday. After a burst of activity in October (19 deals), uncertainty surrounding the “fiscal cliff” led to the second slowest end of the year (just 10 deals in Nov/Dec) in the past decade (only 1 deal in 2008).*
Read more
*Renaissance Capital is the source of all historical data related to number and size of U.S. IPOs
Although overall results showed a slight improvement over 2011, the inconsistency of the market and the drop in proceeds absent the Facebook IPO, give the capital markets community clear reason for concern as we enter 2013.
2013 FOreCAStAccording to the 2013 BDO IPO Outlook survey, capital markets executives at leading investment banks are projecting measured growth in initial public offerings (IPOs) on
U.S. exchanges in 2013. Exactly half predict an increase in U.S. IPOs in the coming year, although only 8 percent describe the increase as substantial, while almost one-third (31%) forecast activity as flat compared with 2012. Just 18 percent expect a decrease in offerings on domestic exchanges. Overall, bankers predict a 6 percent increase in the number of U.S. IPOs in 2013. They anticipate these offerings will average $250 million, which projects to $34 billion in total IPO proceeds on U.S. exchanges.
2 2013 BDO IPO OutlOOk
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DeAl SiZeAbsent the Facebook offering, the size of the average IPO in 2012 was considerably smaller than 2011 and capital markets executives identified several contributing factors for this trend. The most frequently cited factors were valuation pressures that forced offering businesses to cut prices (47%), smaller businesses pursuing offerings (31%) and companies offering a smaller percentage of the business in the deal (13%).
A good percentage of U.S. IPOs priced below range in 2012 as discerning investors, in a market plagued by sporadic activity, forced offerings businesses to cut prices. This trend led to very positive investor returns which will likely keep the pressure on valuations in 2013.
Almost a third of I-bankers see smaller offering companies as a main reason for smaller deal sizes and, if the JOBS Act is successful in encouraging more offerings from emerging businesses, this trend is likely to continue going forward.
“In 2012, the number of U.S. IPOs was relatively flat with activity in 2011, but total proceeds raised were the second most in the past ten years, trailing only the pre-crisis high of 2007. However, more than a third of 2012 proceeds were attributable to the Facebook IPO and, absent that offering, proceeds would have been the lowest since the height of the financial crisis in 2009. If you remove Facebook from 2012 figures, the bankers’ projections for the coming year represent an approximate 28 percent increase in proceeds.”
– Brian Eccleston, a Partner in the Capital Markets Practice of BDO USA
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Absent the Facebook IPO, the size of the average offering was actually down significantly in 2012. What do you feel had the greatest impact on the smaller deal size?
47%
31%
13%
8%
Valuation pressures forcing offering businesses to cut prices
Smaller businesses pursuing offerings
Businesses offering a smaller percentage of company in deal
Other
Compared to 2012, do you anticipate that 2013 IPO activity (# of IPOs) in the U.S. will...
31% Stay
about the same
50%Increase
Source: 2013 BDO Board Survey
18% Decrease
What do you consider to be the greatest threat to a healthy U.S. IPO market in 2013?
37%
34%
11%
10%
Threat of tax increases and government spending cuts
Global political & financial instability
High unemployment
Constrained bank lending
Source: 2013 BDO Board Survey
Competition from foreign exchanges
Other
4%
4%
Source: 2013 BDO Board Survey
ipO tHreAtSWhen asked to identify the greatest threat to a healthy U.S. IPO market in 2013, more than a third (37%) of capital markets executives cite the threat of tax increases and government spending cuts and a similar
proportion (34%) highlight global political and financial instability. High unemployment (11%), constrained bank lending (10%) and competition from foreign exchanges (4%) are identified as threats by small minorities of the participants.
32013 BDO IPO OutlOOk
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inDUStrieSIn terms of how individual industries will fare in 2013, approximately two-thirds of the investment banking community are predicting a continued increase in offerings in the healthcare (69%), technology (67%), biotech (67%) and energy (65%) verticals. A lesser majority (54%) forecast a jump in real estate offerings. No other industry is predicted to achieve an increase in IPOs by a majority of the survey participants.
With healthcare reform moving ahead, home prices rising in many regions and construction activity beginning to pick up; the healthcare and real estate verticals experienced the biggest jump in confidence (+19%) when comparing the 2013 and 2012 IPO forecasts by industry. (See chart.)
For the fourth consecutive year, private equity portfolios (41%) are the most often predicted source for IPOs in the coming year. Venture capital portfolios (24%), owner managed privatelyheld businesses (16%) and spinoffs and divestitures (15%) are the other sources identified by the bankers.
When asked what offering attributes will be most valued by the investment community in 2013, 38 percent cite long-term growth potential and approximately one-third (32%) say stable cash flow. Profitability (13%) and strength of industry vertical (12%) are cited by smaller proportions of participants.
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“While deal activity in the U.S. was sporadic throughout the year, it compared very favorably to foreign exchanges. Slow growth in China severely reduced government-backed IPOs on the Hong Kong and Shanghai exchanges, while European exchanges remain captive to the continent’s sovereign debt crisis. Capital markets executives are anticipating further improvements to the U.S. economy in 2013, and that will be the key to U.S. exchanges maintaining a dominant position in terms of total global proceeds.”
– Lee Graul, a Partner in the Capital Markets Practice of BDO USA
Proportions of Capital Markets Executives at leading Investment banks expecting U.S. IPO activity to increase in 2013 in specific industries versus the percentage from 2012 survey.
Industry % Projected 2012 Increase % Projecting 2013 Increase
Healthcare 50% 69%
Technology 73% 67%
Biotech 59% 67%
Energy/Natural Resources 72% 65%
Real Estate 35% 54%
Industrial/Manufacturing 27% 33%
Consumer/Retail 23% 30%
Media/Telecom 39% 29%
Financial 16% 26%
U.S. vS. tHe wOrlDThe U.S. led all countries in IPO proceeds in 2012, generating more than 40 percent of global proceeds. Even without the Facebook IPO, U.S. exchanges would have led all other countries comfortably. When asked the chief factor driving this trend, the capital markets community identified an anticipated improvement in the U.S. economy (33%), the European debt crisis (33%) and slowing growth in China (23%).
Moving forward, approximately one-quarter (24%) of I-bankers see U.S. exchanges continuing to increase their percentage of global IPO proceeds during the coming year. However an even larger proportion (44%) believe the U.S. cut of the global pie will remain about the same as 2012, while approximately one-third (32%) anticipate the U.S. share declining in 2013.
In 2012, IPOs on U.S. exchanges represented approximately 40 percent of total global IPO proceeds, a considerable increase from 2011. In 2013, do you think this percentage will...
Source: 2013 BDO Board Survey
44% Stay about the same
24%Increase32%
Decrease
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The bankers overwhelmingly (61%) cite Asia as the geographic location most likely to spawn foreign-based IPOs on U.S. exchanges in 2013. Latin America (15%), Europe (10%), Eastern Europe/Russia (6%), Middle East (3%) and Africa (2%) were other regions cited.
In terms of IPOs taking place on foreign exchanges, about one-third (32%) of investment bankers believe Hong Kong will be the most popular in 2013. Shanghai (19%) and London (17%) are the only other exchanges receiving double digit support.
BUlGe BrACketCapital markets executives at the very largest banks or “bulge bracket” firms mirror the responses of the total capital markets community on most topics. However, they were much more likely (61% vs. 37% overall) to view tax increases/spending cuts as the primary threat to the U.S. IPO market in 2013 and twice as likely (65% vs. 32%) to predict an increase in foreign-based offerings on U.S. exchanges this year. They were also more bullish (67% vs. 54%) on an increase in real estate IPOs in 2013.
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What one factor do you believe had the greatest impact on increasing U.S. exchanges share of total global IPO proceeds in 2012?
33%
33%
23%
11%
Anticipated improvement in the U.S. economy
European sovereign debt crisis
Slowing growth in China
Other
Source: 2013 BDO Board Survey
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“The survey clearly shows that the investment banking community is less enthusiastic about the JOBS Act than it was immediately following the law’s enactment. In addition to the lack of a positive impact on IPO numbers, the bankers indicate that the new law’s confidential filing provision has made it more difficult for them to advise clients.”
– Wendy Hambleton, a Partner in the Capital Markets Practice of BDO USA
June 2012Do you believe the JOBS Act will be effective in increasing the number of businesses going public?
Source: 2013 BDO Board Survey
45% No
55%Yes
December 2012Thus far, have you seen evidence that the JOBS Act will be effective in increasing the number of businesses going public?
42 % No
29%Yes
28% Too early
to tell
JOBS Act effectiveness? JOBS ACtOne of the goals of the JOBS Act, enacted last April, was to increase the number of U.S. IPOs by easing regulations and associated costs for smaller emerging growth companies conducting offerings. Yet, less than one-third (29%) of capital markets executives at leading investment banks believe the JOBS Act has been effective in increasing the number of IPOs on U.S. exchanges. This is a considerable drop since last summer when a majority (55%) of I-bankers believed the JOBS Act would be successful in increasing the number of businesses going public. Today, forty-two percent of the bankers see no evidence that the new law is positively impacting IPOs, while more than a quarter (28%) believe that it is too early to evaluate the law’s impact.
According to the SEC, in 2012, more than 100 companies utilized the JOBS Act’s confidential filing process to “test the waters” for a possible IPO. More than three-quarters (80%) of I-bankers indicate that this lack of transparency has had a negative impact on their ability to advise clients on their offerings due to a lack of information on potential competitors for investment dollars. Although only 9 percent of the bankers describe this difficulty as “substantial”
ABOUT THE SURvEYThe BDO IPO Outlook Survey and the BDO IPO Halftime Report are national telephone surveys conducted by Market Measurement, Inc., an independent market research consulting firm, on behalf of the Capital Markets Practice of BDO USA. Executive interviewers spoke directly to 100 capital markets executives, using a telephone survey conducted within a scientifically-developed, pure random sample of the nation’s leading investment banks.
Moreover, investor groups are also giving the confidential filing process mixed reviews. Almost half (48%) of capital markets executives report that investor groups are reluctant to meet with emerging businesses that are confidentially testing the waters for an IPO under the JOBS Act, as they prefer to wait until the company has made a public commitment to the offering.
ABOUT BDO USA
BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through more than 40 offices and over 400 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multinational clients through a global network of 1,204 offices in 138 countries.
BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information, please visit: www.bdo.com.
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