IPO Mania: Why the Sudden Surge in Going Public?
NEW YORK (MainStreet) There have been 193 initial public offerings priced in the U.S. this year, an increase of nearly 60% from last year, and a trend on-track to be the most deals seen since the Dot Com bubble of 2000, according to Renaissance Capital.
Why the sudden interest? The CFA Institute, an association of investment professionals, asked members to pinpoint the possible reasons for the surge in IPOs.
"Despite what some might characterize as a building froth, only 28% of the 608 respondents to [our] global poll consider this upswing in IPO activity troubling and indicative of a bubble," writes David Larrabee, director of member and corporate products at the CFA Institute, in a report on the poll. "A plurality of respondents, 38%, attribute the strength to healthy capital markets and investor bullishness, and 26% simply see risk taking on the rise but, importantly, no cause for alarm."
Just 8% of respondents to the poll attributed the increase in IPOs to relaxed capital raising rules.
Particularly notable is the reversal of fortune for historically poor IPO performance. Renaissance reports the average return for IPOs improved on a sequential basis to 27% in the third quarter, well above the S&P's 5% and the Russell's 6% quarterly gains.
"Performance was driven primarily by a higher average first-day pop, which spiked to 19%, the highest level seen since the 2Q 03's 24%," a Renaissance analysis says.
Excluding NRG Yield, a rare utilities IPO that garnered strong favor, the research firm reports that the consumer, technology and health care sectors continued to generate the highest returns.
Sprouts Farmers Market, a natural and organic grocery chain, has gained 147% since its rollout in late July, putting the consumer sector in the IPO headlines. Three of the top five tech IPOs were on-demand software firms, including cyber security software provider FireEye, which ended the quarter 108% above its offering price.
Health care IPO returns were driven by cancer diagnostics company Foundation Medicine, with a 120% total return, as well as a handful of biotech firms.
IPOs tied to the housing and construction sectors produced the lowest returns for the third quarter of this year.
--Written by Hal M. Bundrick for MainStreet