Posted by: hmchang | June 14, 2008

Study on U.S. IPO from 2006 to 2008Q1

1. Overview

The US IPO statistics shows a continuous growth since 2003. In 2006, there were 198 deals that accumulated total proceeds of $43 billion. In 2007, the total number of deals increased by 18% to 234, and the total proceeds increased by 25% to $54 billion.

The average annual IPO return is approximately 26% in 2006 and 13% in 2007. The aftermarket return, indicating those who did not get at the IPO offer price but trade the stock aftermarket, is approximately 13% in 2006 and 0% in 2007. The return in 2007 is less than 2006 due to the major downturn in the stock market: first the dip in Asian stock in the spring, and then the subprime crisis in the summer and early fall [2]. Investors tends to get rid of the recently acquired companies in their portions which they have least confident of [2]. Despite the lower return in 2007, the average first day pop remains constant at 11% in 2006 and 2007.

2. Industry Analysis

The technology sector is the most active IPO sector in both 2006 and 2007. In 2007, there are 52 technology IPOs [2], making it the most active IPO year since 2000. The health care sector remains strong in both 2006 and 2007, taking up 10% of the total IPO proceeds in 2006 and 19% in 2007.

As the continuing growth of crude oil price, the energy sector has come into many investors’ attentions. The energy sector takes up 11.7% in 2006 and 14.9% in 2007. Alternative energy such as solar cell has gain popular in the past two years. In 2006, four solar power companies went public: Canadian Solar (+35%), Trina Solar (+2%), Solarfun Power (-20%), and First Solar (+39%) [1]. The number in the parenthesis indicates the change in stock price as of 2006/12/29. The stock price of First solar (ticker: FSLR), in particular, has 10 times its IPO price in 2007 [3].

Finally, two big financial service companies went IPO in the past two years: Mastercard (ticker: MA) in 2006 and Visa (ticker: V) in 2008. The Visa IPO is said to be the largest IPO in the U.S. history [4]. The Mastercard stock price has soared four times since its IPO and VISA stock price has now surged more than 30% since its IPO in March 2008.

3. Venture-backed IPOs

There are 57 venture-backed IPOs in 2006 and 86 in 2007 [6]. Venture-backed IPOs indicates at least one U.S. VC investor that trade on U.S. exchanges, regardless of domicile. As from [6], “in full year 2007, the IT sector accounted for the most venture-backed IPO’s, totaling 47 issues and $6.0 billion in volume. Life sciences followed with 32 issues and $26 billion in proceeds”.

Recent venture capital investment activities are mainly on by the software, life science and the energy sectors [7]. The IPO trend seems to fit well with the investment trend. This may because that approximately 80% of the venture capital investments go into expansion or later stage investments.

As the venture capitalists kept invest in health care, biotechnology, and energy companies, we are expecting more IPOs from these sectors in the next few years.

References

[1] IPOHome 2007 Summary

http://www.ipohome.com/marketwatch/review/2007review.asp

[2] IPOHome 2006 Summary

http://www.ipohome.com/marketwatch/review/2006review.asp

[3] Yahoo Finance: FSLR quote, http://finance.yahoo.com/q?s=FSLR

[4] Visa Planning for largest IPO in U.S. history: news from international herald Tribune: http://www.iht.com/articles/2008/02/26/business/26visa.php

[5] Yahoo Finance: MA quote, http://finance.yahoo.com/q?s=MA

Yahoo Finance: V quote, http://finance.yahoo.com/q?s=V

[6] U.S. Venture-backed IPO exits strengthen in 2007, from National Venture Capital Association http://www.nvca.org/pdf/Q407ExitPollReleaseFINAL.pdf

[7] The Money Tree Report

https://www.pwcmoneytree.com/MTPublic/ns/index.jsp

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Responses

  1. Brilliant!


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