The number of IPOs on U.S. exchanges rose to 54 in the second quarter from 43 in the first, according to the PricewaterhouseCoopers U.S. IPO Watch, a survey of IPO activity in the U.S. However, proceeds fell to $9.3 billion from $10.8 billion in the first quarter, as average deal size declined. Second quarter results also reflect a decline from last year, when 63 IPOs raised a total of $12.4 billion.
“The choppiness of the U.S. stock market during much of the second quarter had an impact on the number and value of deals completed,” said Scott Gehsmann, North American Leader of PricewaterhouseCoopers’ Global Capital Markets Group. “As market indices retreated from highs reached in the previous six months, some deals were put on hold. However, as the markets rallied toward the end of the quarter, IPO activity picked up as well, with more than a third of all Q2 IPOs completed during the last two weeks of June. This late surge bodes well for a healthy pipeline of IPOs during the second half.”
Further, Gehsmann pointed to some key trends uncovered in the U.S. IPO Watch analysis of second quarter 2005 activity. First, Real estate investment trusts (REITs) continue to lead the way. Continued high real estate prices drove the value of REIT IPOs higher this quarter. While the number of IPOs in the second quarter was the same as last year-five-the value of these offerings rose more than four times from $608.4 million last year to $2.7 billion this year. REITs raised more than any other industry in the first half of this year, accounting for 21 percent of total IPO proceeds, or $4.2 billion.
REITs were the only segment of the financial services industry whose second-quarter proceeds rose year-over-year. While banking saw a fourfold increase in IPO activity, fuelled by greater numbers of smaller regional players entering the public markets, proceeds were less: $624 million from eight transactions this quarter, compared with $1.1 billion from two transactions in Q2 ’04. Insurance activity was down drastically with only one IPO raising $80 million last quarter, compared with five IPOs that raised $4.5 billion in Q2 ’04.
Additionally, health care, communications, capital goods, transportation and retail activity increased. Each of these sectors saw an increase in both the number of transactions and proceeds raised in the second quarter of ’05 compared with ’04. The increase was most dramatic in transportation where five IPOs raised $730 million this quarter, compared with two raising $346 million last year. Proceeds rose sharply in communications (from $126 to $801 million) and capital goods (from $239 to $600 million), due largely to bigger players entering the market. Building on its strong showing last year, the number of health care IPOs rose from five to six, while proceeds increased from $294 to $395 million.
Further, Biotech and software declined. Biotechnology, which was very active for five quarters, experienced a sharp decline to two IPOs valued at $74 million, compared with 13 deals valued at $664 million during Q2 ’04. Five software IPOs raised $382 million last quarter, compared with six deals that raised $593 million in Q2 ’04.
The quarter’s only billion dollar IPO listed on AMEX. Franklin Street Properties lifted the total raised on the AMEX last quarter to $1.1 billion, compared with $21 million during the same period last year. Excluding this transaction, the average deal size on the AMEX rose from $10.6 million to $19.6 million. This presents a sharp contrast to the two larger exchanges, where average deal value declined. While the NYSE’s share of second-quarter listings rose from 27 to 31 percent, the average IPO offering value fell from $400 to $305 million. NASDAQ’s share fell from 70 to 62 percent, while average deal size declined from $127 to $90 million.
Activity by non-U.S. companies off 50 percent. Only four second-quarter IPOs involved non-U.S. companies this year, compared with eight last year, while the offering value of these transactions fell from $2.3 billion to $492 million. The decline in the number of non-U.S.company IPOs may possibly signal a reluctance to enter the Sarbanes-Oxley reporting environment.
European activity continues to surge, but value declines. In the second quarter, 169 IPOs raised $13.4 billion on European exchanges this year, compared with 95 deals raising $10.6 billion in Q2 ’04. However, average IPO size decreased from $111 to $79 million.