U.S. IPOs Lacked Luster In 2015: Will 2016 Turn The Tables?

U.S. Initial Public Offerings (IPOs) were a major disappointment in 2015. According to Renaissance Capital, 170 IPOs raised only $30 billion (275 in 2014), which is the lowest since 2009. Median deal-size also decreased to $93.8 million from $100 million in 2014 owing to a higher number of small biotech offerings.

Almost half of the IPO proceeds came from the Health Care sector (46% from 78 deals), followed by Energy (7% from 12), Financials (14% from 23) and Technology (14% from 24). The number of technology IPOs fell drastically to 24 in 2015 from 55 in 2014, marking the maximum deterioration since 2009.

No Alibaba to Rescue

Lack of a big-sized deal like Alibaba’s (BABA - Analyst Report) in 2014 was also one of the reasons behind the decline. The ten largest U.S. IPOs raised $9.9 billion in 2015, the lowest since 2005. These companies witnessed an average first-day increase of 16% in their share prices. However, a massive decline in share prices in the energy sector (12 IPOs) dragged down the average return to -12%.

The year’s largest deal, IPO of payment processor First Data (FDC - Snapshot Report), met lackluster response despite the price cut to $16 (from the original expectation of $18–$20). The company finally managed to raise $2.56 billion from the IPO. As of Dec 31, 2015, First Data’s return from the IPO was a minimal 0.1%.

Meanwhile, health care company Aclaris Therapeutics (ACRS - Snapshot Report) was the best performing U.S. IPO with a return of 144.9% as of Dec 31, 2015. Ad-tech provider MaxPoint Interactive (MXPT - Snapshot Report) was the year’s worst, with returns declining to 87.2% as of the same date.

IPOs of well-known technology companies like Square, Box, GoDaddy, Etsy failed to gain market traction. On the other hand, well-known brands like Shake Shack, Ferrari, Fitbit (FIT - Analyst Report) and Blue Buffalo received mixed response from investors.

Will Meagre Returns Drive Away PEs and VCs?

Disappointing IPO returns is a major concern. According to Renaissance’s report “At the end of 2015, 57% of IPOs traded below the offer price, compared to 41% at the end of 2014. The average IPO finished the year down -2% from its offer price, below most major indices and negative for the first time since 2011, ending a three-year bull run of 20-40% average returns for IPOs.

Further, the decline in private equity (PE) backed IPOs, down from 71 in 2014 to 39 in 2015, sums up the mood of the market. PE-backed proceeds totaled $11.3 billion, significantly below $25 billion recorded in 2014.

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