A Closer Look at IPO Pipeline: What Lies Ahead

by: Renaissance Capital IPO Research

With 87 IPOs completed year-to-date in 2010, easily exceeding the 64 deals completed in all of 2009, the US IPO market is starting to resemble its pre-Great Recession self. High profile filings from General Motors (NYSE:GM) and Skype (SKP) drew a great deal of attention to the IPO space toward the end of a tumultuous summer, but these and other marquee registrations only represent the tip of the iceberg in a swollen IPO backlog.

In the US, new IPO filings have more than doubled the rate of pricings so far this year, and the pipeline has grown to include 170 companies seeking to raise nearly $60 billion in proceeds. For historical context, the last time the backlog exceeded 170 companies was September 2007, which is still well below the 387 companies in queue toward the tail end of the tech bubble (May 2000).

Not only has the number of prospective US issuers reached pre-crisis levels, there is also an important change in composition; an uptick in filings from venture capital-backed firms, led by the tech and healthcare sectors, has the US IPO market primed for the return of risk appetite.

A closer look at the IPO pipeline reveals:

  • By issuers, the US pipeline has grown by 81% in the last year.

  • An increasing proportion of VC-backed IPO filings, which now account for 25% of the overall pipeline.

  • Technology and health care represent a rising share of the backlog, while financials and energy declined.

  • Numerous big name PE-backed firms look to the IPO market to deleverage.

  • Large offerings are teed up in every region around the globe; Asia looks to be the most active.

US Pipeline: What a Difference a Year Makes

Since September 2009, the US IPO pipeline has grown from 94 to 170 potential issuers (+81%). Again, this is largely due to a sharp increase in filing activity; the 184 year to date new filings in 2010 have outnumbered IPO pricings two-to-one, and are up nearly four-fold from the 47 in the comparable period in 2009.

Broken out by industry, technology and healthcare issuers have grown to represent a combined 33% of the overall pipeline, up from 23% at the same point last year. Though financial firms represent a leading 26% of potential issuers, this is down from 30% in September 2009, and mortgage REIT filing activity has slowed thanks in part to a less accommodative yield curve.

Venture Firms Looking for Liquidity

Venture Capital-backed companies have returned to the IPO backlog following a conspicuous absence during the 2008-2009 downturn. Though still below pre-recession levels, there are currently 42 VC-backed deals in the US pipeline, compared with only nine a year ago. Not surprisingly, 73% of these potential issuers are in the technology and health care industries, which has contributed to the pipeline’s sector shift.

Of the 42 VC-backed IPO hopefuls, 71% were founded in or after 2000, 71% generated less than $100 million in sales over the last 12 months and 57% have yet to turn a profit on a trailing 12-month basis. The outperformance of recent VC-backed deals may offer a glimmer of hope to would-be filers: year-to-date, VC deals have posted an average total return of 8% versus 1% for the overall market. However, the increased filing activity may also signal a willingness on the part of VC backers to accept lower valuations in exchange for liquidity.

As discussed at length in our recent PE study, buyout firms currently control 42 of the 170 deals in the pipeline and represent $17 billion (30%) in potential proceeds. Many are familiar names looking to tap the IPO market in order to shore up balance sheets, including GM, Toys “R” US (TOYS), HCA (NYSE:HCA) and AMC Entertainment.

However, with companies sitting on record amounts of cash, the PE-backed pipeline may lose a handful of potential issuers to M&A activity, particularly those at the smaller end of the deal spectrum. Recent acquisitions of “dual-track” filers include Univar ($863 million proposed IPO) and Logan's Roadhouse ($200 million).

Global Activity Gearing Up

Although harder to measure due to lower filing visibility, there appears to be ample dry powder in the global IPO pipeline, with large offerings teed up almost every region across the globe:

  • Europe – Generating the most buzz in Europe is Italian energy company Enel SpA's (EN) planned spin-off of its renewable energy assets, Enel Green Power, in a $3 billion IPO this October. Other large deals in the European pipeline include PE-backed Danish jewelry maker Pandora ($1.6 billion) and Norwegian property and casualty insurer Gjensidige Forsikr ($1.3 billion).
  • Asia Pacific – The Asian IPO market will likely remain the most active, with several massive deals slated for the remainder of 2010. These include India’s largest coal company, Coal India ($3 billion, October), the Government of Singapore Investment Corporation’s real estate arm Global Logistic Properties ($2.5 billion, October), Malaysian energy company Petronas Chemicals Group Bhd (OTC:PNAGF) ($2 billion, September), and what may be a $15 billion Hong Kong deal for AIG’s (NYSE:AIG) Asian life insurance unit, AIA, sometime in the fourth quarter.
  • Latin America – Brazil continues to drive IPO issuance in Latin America and has a significant backlog that will likely help it continue its lead. Most noteworthy is Spanish oil company Repsol SA’s planned spin-off its Brazilian assets before the end of the year.
  • Middle East and Africa – A dormant Middle East market could potentially be awakened by the planned IPO of telecom services provider Nawras in Oman. The company, a spin-off of Qatar Telecom, is looking to generate more than $500 million in proceeds in late October.


With moderate deal flow and mixed performance year-to-date, the IPO market remains at a crossroads. On the one hand, there are an increasing number of venture-backed growth companies in the pipeline, representing familiar sectors such as technology and healthcare. On the other, we have the continued flow of private equity-backed deals looking to delever, as well as the closely watched privatization of General Motors.

Although high-profile PE-backed deals will continue to face valuation pressure from investors, we expect most to move forward, which could drive full-year global issuance above $200 billion for the first time since 2007. As we head into the fall, investors will be watching the IPO market’s path as a barometer of risk appetite and the sustainability of the still-fragile economic recovery.

*Pipeline includes all deals that have filed or amended an IPO registration statement within the last two years

Disclosure: No positions