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A late summer lull combined with persistent market volatility led to a steep decline in global IPO activity in the third quarter, making it the least active quarter of global issuance since 3Q09. Deal flow slowed to a trickle by mid-August, with 72% of total proceeds raised during the first six weeks of the quarter. Many IPOs were put on hold as companies elected to wait out market turbulence. This included several large deals, which led to a meaningful 14% decline in average deal size from the 2Q11. Global IPO performance turned negative for 3Q11 (-4%) as the markets struggled through the ongoing European debt crisis and a weak U.S. economy. However, the global IPO pipeline grew to record proportions and now contains 336 private companies that are expected to raise nearly $180 billion.

Global performance worsens, buffeted by macroeconomic factors

Global IPOs suffered from continued headwinds from the ongoing European debt crisis and the weak U.S. economy, averaging a -4% return for the quarter. Asia Pacific managed to post a positive 1% return in the 3Q11, boosted entirely by a 3% return in China A shares, which accounted for seven of the quarter's 10 best performing IPOs. Excluding China A shares, Asia Pacific would have traded down 5% on average. Europe and North America were the worst performing regions, with average returns of -9% and -14%, respectively. (Country/region breakdown)

Market volatility takes its toll on US IPOs

Weak economic indicators and stock market losses also took their toll on the U.S. IPO market in the 3Q11. Only 18 companies went public, a 45% decrease in issuance from the year-ago period, making it the slowest quarter for U.S. IPOs in two years. The 33% drop in proceeds to $3.5 billion was less severe due to a 22% increase in average deal size to $195 million, largely driven by a sharp year-over-year drop-off in venture-backed IPOs. Of the 18 U.S. IPOs, 14 (78%) were completed in July, before market volatility forced the IPO window to close in early August. The largest IPO of the quarter was SandRidge Permian Trust (NYSE:PER), which owns royalty interests in producing and developmental wells in the Permian Basin and raised $540 million. No U.S. IPO raised more than $1 billion in proceeds. (Sector breakdown)

Outlook

A deteriorating economic outlook put a damper on the global IPO market in the 3Q11 and will likely continue to impact deal flow in the near term as Europe continues to grapple with the containment of its debt crisis and the U.S. and Asia address decelerating growth. That said, healthy filing activity suggests a large number of private companies are interested in moving forward with the IPO process and are optimistic that conditions will improve. There are currently 336 companies in the global pipeline, which are expected to raise $180 billion in gross proceeds. The shadow backlog is significantly larger. Though investors will undoubtedly raise standards in the coming months in the context of a more fragile economic recovery, this could prove favorable for global IPOs and force only the highest-quality candidates to come to market.

Source: Global IPO Activity Falls In Third Quarter As Volatility Spikes