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2012 IPO Outlook: U.S. May See Another Choppy IPO Market
added: 2011-12-29

2012 will be another turbulent year for the U.S. IPO market, according to a new survey of American transaction attorneys conducted by KCSA Strategic Communications, a leading integrated communications firm specializing in financial public relations, investor relations, social media and creative marketing services.

KCSA conducted an in-depth survey of 50 securities attorneys whose firms advised on 70 percent of the initial public offerings listed on major U.S. exchanges during 2011.

According to the results of the independent survey:

•92 percent of securities attorneys think the IPO market in 2012 will be relatively flat when compared with 2011.
•93 percent of the lawyers surveyed believe the most anticipated IPO in 2012 will be Facebook.

Although many of the attorneys expressed concerns that the IPO market may be experiencing a social media bubble:

•72 percent named Groupon as the most anticipated IPO of 2011.
•85 percent noted the Groupon offering as the most over-hyped IPO this year.
•Zynga and LinkedIn were the only other offerings mentioned.

According to Jeff Corbin, chief executive officer of KCSA Strategic Communications, "From KCSA's perspective, although companies such as Groupon, LinkedIn and Zynga have dominated the headlines, we have seen investor appetite, especially for IPOs, gravitate toward companies that operate within more mature, proven industries. As a result of the market uncertainty we've experienced over the past three to four years and based on the results of the survey, we suspect that both institutional and individual investors are looking for a respite from market turbulence and a return to predictability."

According to 84 percent of those surveyed, there is still strong demand for foreign companies to access U.S. capital markets and list on the major U.S. exchanges.

"Many foreign companies still view the U.S. capital markets as the holy grail in terms of listing, both in terms of perception as well as liquidity. Indeed, foreign technology companies, particularly in Europe and the Commonwealth of Independent States (CIS), are concluding that the U.S. capital markets are the only location where their value will be appropriately reflected," commented Colin Diamond, Partner, White & Case LLP.

A key survey finding was that there was a 22 percent drop off in positive sentiment toward Chinese-based company issuances. Concerns about corporate governance issues arose as 78 percent of respondents named China as a continuing strong driver of U.S.-based IPO issuance in 2012 versus 100 percent in the 2011 survey.

According to Peter Astiz, Co-head of the Global Technology Sector practice for DLA Piper, "The fall-off is largely driven by the number of China-based issuers that have experienced corporate governance and accounting issues. However, listings of Chinese-based companies will continue as U.S. investor interest in being able to participate directly in China's economic growth remains strong and Chinese companies want access to the deepest and most liquid markets that the NYSE and NASDAQ provide."

The attorneys surveyed expect increased IPO issuance from other foreign countries. When asked which foreign countries and regions will drive global IPO issuance, 18 percent of respondents named Israel, 16 percent said India and 11 percent said Brazil and Europe.

"While attitudes toward China may be cooling, other regions seem to be heating up. Countries with strong original technologies, natural resources or sources of energy are of tremendous investor interest," added Corbin.

Private Equity backed companies are also expected to dominate the IPO landscape in 2012, according to 84 percent of attorneys surveyed. "The pipeline of private equity backed IPOs remains robust and we anticipate seeing continued strong activity from this group of issuers as sponsors look for exit opportunities for their investments," noted Craig Marcus, Partner, Ropes & Gray LLP.

Attorneys who were surveyed are seeing some novel deal structures to get offerings into the market including:

•UP-C (14%)
•UP-REIT (14%)
•Dual class share offerings (32%)
•61% also anticipate an increase in the number of companies pursuing a private transaction instead of an IPO

While Sarbanes-Oxley may have had a profound impact on pre-IPO companies in the past, especially smaller companies, 57 percent of those surveyed anticipate that regulatory changes, such as the Schumer Bill, will make it easier for small companies to access the U.S. capital markets. Respondents also anticipate a number of actions that will involve heavier scrutiny of foreign companies, including the SEC's recent announcement regarding non-public submissions for foreign issuers.

"There are a number of companies preparing to go public that will most likely go public in the U.S. market regardless of regulatory requirements," said Dave Beveridge, Partner, Shearman & Sterling LLP. "These are quality companies that are at that point in their lifecycles where being public makes sense."

Other key findings from the survey included:

What are the factors leading to improvement in the IPO market?

a. Better Valuations: 10%
b. Good Market Performance: 19%
c. European Stabilization: 38%
d. Elections: 11%
e. Strong Pipeline: 4%
f. U.S. Economy Improvements: 19%

What industries are driving IPO issuance?

a. Consumer/Retail: 6%
b. Biotech: 4%
c. Energy: 11 %
d. Health Care: 10%
e. Social Media: 12%
f. Natural Resources: 8%
g. Technology: 27%
h. Other: 22%

Source: PR Newswire

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