Capital Markets Executives at Leading Investment Banks Predict 25 Percent Growth for U.S. IPO Market in 2010 According to BDO Study

According to a new study by BDO, one of the nation’s leading accounting and consulting organizations, capital markets executives at leading investment banks are bullish on the U.S. initial public offering (IPO) market for 2010. More than two-thirds (68%) believe IPO activity will increase this year compared to 2009, with almost a quarter (24%) describing the increase as substantial. Only 5 percent of the survey participants expect a decrease in IPOs in 2010, while 27 percent forecast activity as flat with 2009. Overall, bankers predict a 25 percent increase in the number of U.S. IPOs in 2010. They expect these offerings to average just over $400 million ($409M) in size.

In terms of which industries are likely to experience an increase in initial offerings in 2010, the investment bankers clearly expect the technology (83%), energy (78%), biotech (72%) and healthcare (62%) verticals to be the likely winners in the coming year (see chart below). No other industry is predicted to achieve an increase in IPOs by a majority of the survey participants.

Industry

Increase

Flat

Decrease

DNR

Technology

83%

14% 3% —-
Energy/Natural Resources

78%

15% 7% —-
Biotech

72%

25% 2% 1%
Healthcare

62%

21% 15% 2%
Financial 46% 35% 17% 2%
Media/Telecom 35% 40% 21% 4%
Real Estate 37% 25% 37% 1%
Industrial/Manufacturing 35% 40% 25% —-
Agriculture 31% 51% 11% 7%
Consumer/Retail 23% 43% 34% —-

These are just a few of the findings of The 2010 BDO IPO Outlook survey which examines the opinions of 100 capital markets executives at leading investment banks regarding the market for initial public offerings in the United States in the coming year. The survey was conducted in December 2009.

“Though still well below “pre-crisis” levels of 2007, in predicting an increase of 25 percent for U.S. IPOs in 2010, this inaugural survey reveals broad-based optimism among the capital markets community that offering activity in the new year will build on the momentum established this past fall, ” said Christopher Tower, a Partner in the BDO Capital Markets Practice.

“Overall, the bankers’ outlook for IPOs is very positive, but some industry sectors are clearly seen as stronger than others. When you consider the buzz surrounding rumored offerings of online networking businesses like Facebook, Twitter and LinkedIn, and the emphasis the current administration has placed on developing alternative energy it makes sense that bankers expect the technology and energy sectors to lead the way in IPOs in the coming year,” said Jay Duke, a Partner in the BDO Capital Markets Practice.

Other major findings of The BDO IPO Outlook Survey:

PE is the Source. When asked what will be the greatest source of IPOs in 2010, thirty-nine percent of capital market executives cite private equity portfolios. Spinoffs and divestitures (22%), venture capital portfolios (21%) and owner-managed, privately-held businesses (17%) are the other sources identified by the bankers.

NASDAQ Trumps Big Board. In terms of the U.S. exchange that will see the most IPO activity in 2010, two-thirds (76%) predict the NASDAQ will capture the majority of the offerings versus 24 percent for the New York Stock Exchange.

Alternative Energy Goes for the Green. A majority (58%) of these capital markets executives feel that alternative energy, or green technologies, will have a significant impact on energy-related IPOs in 2010.

Bulge Bracket. Capital 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 are even more bullish about IPO activity, predicting a 38 percent year-over-year increase, and are even more likely to view private equity portfolios (62%) as the greatest source of IPOs in 2010. They are also more evenly split between the NASDAQ (54%) and the Big Board (46%) as the domestic exchange of choice for IPOs in 2010.

Many Happy Returns. On average, the bankers feel IPOs will need to achieve a 12 percent one-day and 20 percent six-month, after-market return to be considered successful in 2010.

Taking a Long-Term View. When asked what type of offering attributes the investment community will value the most in the coming year, more than a third of bankers (38%) cite long-term growth potential. Other attributes that will be valued in 2010 are profitability (28%) and stable cash-flow (25%). Some bankers (9%) see the strength of a company’s industry vertical as the most valuable attribute of an IPO in 2010.

How Much Equity? On average, bankers think businesses will need to offer 38 percent ownership to achieve a successful IPO this year.

Peak Performance. Of the 68 percent forecasting an increase in IPO activity in 2010, almost half (46%) expect activity to peak in the third quarter of 2010, while a third (33%) feel the second quarter of the year would set the high water mark for activity. Q1 (6%) and Q4 (15%) are less likely to see a peak in activity.

As the Stock Market Goes… Not surprisingly, the performance of the stock market is viewed as the most important factor in determining the health of the IPO market. The rebound of the stock market (44%) and improved investor confidence (25%) are viewed as the main reasons for the increase in IPO activity during the second half of 2009. By the same token, almost half (48%) of the investment bankers identify poor stock market performance as the greatest threat to IPOs going forward. Constrained bank lending is viewed as the greatest threat by almost a third (30%) of the participants.

Secondary Offerings. When discussing follow-up offerings, more than three-quarters (81%) of the bankers view a secondary offering as an important factor in a business’s IPO decision. Thirty-two percent believe a secondary offering is “very important” versus 49 percent who say it is only “somewhat important.” Nineteen percent think a secondary offering has no importance in an IPO decision. Of those who view follow-up, secondary offerings as an important component in an IPO decision, a majority (58%) believe the second offering should take place at least a year after the initial offering, but another 41 percent feel it can take place in as little as six months after the IPO.

 

The BDO IPO Outlook Survey is a national telephone survey conducted by Market Measurement, Inc., an independent market research consulting firm, whose executive interviewers spoke directly to capital markets executives, using a telephone survey conducted within a scientifically-developed, pure random sample of the nation’s leading investment banks.

BDO 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.

About BDO

BDO is the brand name for BDO Seidman, 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 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through 37 offices and more than 400 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 1,138 offices in 115 countries.

BDO Seidman, LLP, a 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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