The IPO and secondary markets were more productive in 2Q16 than they were in 1Q16, but the numbers were once again sharply lower versus the year-ago period. Overall, 35 companies came public in 2Q (including blank check and closed-end funds), up 320% from 1Q16 but down 53% year over year. For secondaries, 147 companies raised additional capital in 2Q16, down 25% year over year - but up almost 50% quarter over quarter (Chart 1).
The U.S. equity market was characterized by declining volatility through most of 2Q16, providing a favorable environment for issuers compared to 1Q. The generally upbeat market activity was the result of stability in oil prices and inactivity by the Federal Reserve, which stayed on the ratehike sideline after raising rates late in 2015.
At the end of the quarter, however, volatility spiked as the United Kingdom voted to leave the European Union. Given the new heightened concern among investors, IPO and secondary activity may be somewhat subdued in the early weeks of the quarter. Typically, the markets experience a seasonal decline from August through Labor Day under even normal conditions. In short, we would be surprised to see the 2Q totals surpassed in 3Q. That's not to say there won't be attractive companies coming public, though.
In the tables on the following pages, we list numerous companies that may be poised to enter the IPO and secondary markets at potentially attractive prices.
Table 1 features a select group of the approximately 190 companies that have filed with the SEC for IPOs. This list has been selected based on factors that Argus believes are important for success in an IPO, including sales and earnings growth, clean balance sheet, brand names, attractive industries and current management/ownership.
Source: Triad Securities, Argus Research
Table 2 lists several companies followed by Argus that are exploring corporate restructurings, which may include splitting off divisions to investors through IPOs. Case in point: Ashland Inc. plans to divest a portion of its Valvoline subsidiary in an IPO in 4Q before spinning off the rest to shareholders. These transactions often increase volatility in the share price of the underlying company, creating buying opportunities.
Source: Argus Research
Table 3 focuses on the Oil & Gas industry. During 1Q, according to Argus Senior Energy Analyst Bill Selesky, numerous energy companies issued secondaries to shore up their balance sheets as oil prices fell below $30 per barrel. Now that prices have recovered to the upper $40s, they are looking to divest assets at prices closer to full value. For this report, we are highlighting the limited partnerships that are in the pipeline, and may come to market in the next few quarters.
Source: Argus Research, Bloomberg
Table 4 highlights Pharmaceutical/Biotech companies that have filed with the SEC for a potential IPO. Of the 35 companies that issued IPOs in 1Q16, 14 were from the Pharmaceutical/Biotech sector, including three that opened up sharply higher than their Issue price: Moleculin Biotech, up 49.8%, with lead underwriters of Bonwick Capital Partners; Intellia Therapeutics, up 22.2%, with lead underwriters of Credit Suisse, Jefferies & Co., Leerink Partners and Wedbush PacGrow; and American Renal, up 20.5%, with lead underwriters of BofA Merrill Lynch, Barclays, Goldman Sachs, Wells Fargo, ST/Robinson Humphrey and Leerink Partners. Argus Director of Healthcare Research David Toung is available for consultation on the industry or any of the companies in the IPO pipeline.
Source: Triad Securities, Argus Research
Table 5 is an update of intriguing venture-backed private companies. Only one of the companies on our list raised additional capital in 2Q16. That may be a signal that private funding is running dry, and/ or valuations are rich.
Source: www.sharespost.com; Argus Research. New to the list "*". Dropped from list: Bloom Energy, Draft Kings, FanDuel.
Copyright Argus Research Company. This report has been prepared for Triad Securities Corp. by Argus Research, a thirdparty investment research company. This report has no regard to specific investment objectives, financial situations or the particular needs of any recipient. It should not be considered an individualized recommendation. All investors are encouraged to use multiple sources of investment information and to actively monitor their holdings. The security or industry discussed may not be suitable for everyone.
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