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Portfolio > ETFs > Broad Market

U.S. IPO Market Expected to Surge in 2014

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It looks like another big year for the American IPO market in 2014, according to KCSA Strategic Communications’ fourth annual survey on initial public offerings.

KCSA interviewed some 50 securities attorneys whose firms advised on 40% of the IPOs listed on major U.S. stock exchanges in 2013. 

Forty-nine percent of the respondents believed that the IPO market this year would be stronger than last. 

The remaining respondents thought this year’s market would be as strong as 2013.

Forty-five percent of those surveyed expected the improvement to come on the strength of a stabilizing U.S. economy and capital markets, while 30% thought monetary and fiscal policy would drive improvement, and 25% placed their bets on increasing investor demand.

Last year’s IPO market was the strongest in the last decade in terms of both IPO proceeds and number of deals, KCSA said in a statement. Moreover, according to survey participants, senior executives of the companies that went public were unanimously satisfied with the success of their IPOs.

KCSA noted that company expectations were based on listing price, aftermarket performance, investor demand and total deal value.

“2013 was the IPO market turnaround that the investor community has been waiting for since before the financial crisis began,” KCSA’s CEO, Jeff Corbin, said in the statement.

“The market has seen strength from nearly every sector including buzzworthy social media companies like Twitter, post-LBO blockbusters such as Hilton, a resurgence of small and mid-cap IPOs and a steady drumbeat of private equity and venture-backed listings.”

Corbin said investors were anticipating a robust IPO market in 2014 based on continued high company valuations and stable market conditions.

Social media will continue to be a source of IPO activity in the coming year, according to the survey. The attorney respondents almost unanimously agreed that Twitter was the most anticipated IPO in 2013 — and that it was overhyped. 

But 97% said the social media bubble had not burst, and 60% thought that the aftermarket performance of Facebook and Twitter would have a positive effect on the valuation of other social media companies considering a public listing.

When asked to reference the most anticipated IPO of 2014, 68% were not sure, but some mentioned Dropbox, Rovio, Foursquare, Outbrain and Alibaba.

The survey found that 44% of respondents expected technology to have the most IPOs in 2014, while 29% looked to health care, 15% to financial services, 8% to energy and 4% to retail.

A big majority of respondents said the JOBS Act, which was passed in 2012, would have a positive influence on pre-IPO companies.

Advantages for companies under the JOBS Act include the ability to file without public scrutiny, testing the market’s appetite, reduced costs, crowdfunding capabilities and reduced financial requirements, according to KCSA.

“The JOBS Act has certainly eased some of the regulatory filing requirements of the IPO process,” Michael Kaplan, co-head of the capital markets practice at Davis Polk & Wardwell, said in the statement.

Beyond that, however, “we think the increase in number of filings is largely due to the overall strength of the IPO market, not companies which found the pre-JOBS Act IPO process prohibitive,” Kaplan said.

Respondents expected private equity-backed companies to continue to dominate the IPO landscape in 2014, as 88% thought that the number of such IPOs would be the same or greater than in 2013.

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