A number of tech companies are taking advantage of an economic climate that is conducive to initial public offerings, which analysts say are on track to surpass pre-economic recession levels.
According to a report from Ernst & Young, a global backlog of companies accumulated during the recession; businesses put off IPOs, waiting for investor confidence to rebound. Now that the economy is less volatile and stocks are trading at higher levels, companies are building up in the IPO pipeline, readying themselves to go public.
Recent American examples of this trend are Zillow and Impinge, smaller companies that went public in April. In China, Renren, the Chinese version of Facebook, went public earlier in May. LinkedIn’s initial public offering is Thursday; Groupon’s is slated for the second half of 2011; and analysts believe Facebook’s will likely come in 2012.
In 2010, IPOs began to rebound to pre-crisis levels, though the resurgence was characterized by fits and starts throughout most of the year. But the final months capped the year with a bang, in which investors fueled a record-breaking quarter: Q4 saw the highest quarterly total capital raised on record (US$131.5 billion, 484 deals), according to the report. A surge of “35 small tech companies raised $4.9 billion at the end of 2010, which, with their potentially high returns, suggested a return of US investors’ risk appetite.” This climate ushered us into 2011.
“The shortage of exit routes, the lack of capital-raising opportunities and the numerous listing postponements since the financial crisis began in 2007 have created a growing IPO pipeline worldwide,” Gregory K. Ericksen, Global Vice Chair for Strategic Growth Markets for Ernst & Young, said in the report.
At the end of February 2011, the growing US backlog contained about 150 companies slated to raise around US$40 billion. Tech companies represented the biggest sector clamoring for IPOs with 27 companies in the pipeline and 14 new registrations.
“We’re optimistic that the global IPO market will function more continuously in 2011 than last year; risk appetite is increasing, volatility has decreased significantly, and there’s generally a good tone in equity markets,” Christ Whitman, Global Co-head of Equity Capital Markets, Deutsche Bank, London, said in the report.
The surge is further buoyed by IPOs in emerging markets like China, which are reaching unprecedented levels, according to the report.
“Given the growth characteristics, and the high level of investor interest in China, we will continue to see a lot of Chinese companies launching successful IPOs in the US,” Frank Maturo, Managing Director, Head of Americas Equity Capital Markets, Bank of America Merrill Lynch, said in the report.