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US IPO Outlook Survey: So Far 2011 Stronger than 2010, but Second Half of the Year May Depend on Success of Facebook® and Groupon® Offerings
added: 2011-07-14

The U.S. IPO market in 2011 has been stronger so far than it was in 2010, but it may be losing momentum entering the second half of the year, according to a new Merrill DataSite® survey.

An independent survey of American transaction attorneys conducted using Merrill DataSite®, the leading virtual data room (VDR) solution for business communication and information management, revealed that 64 percent think the second half of the year will be flat or weaker when compared with the first half. According to the survey, the most anticipated IPOs still to come in 2011 include Groupon® (35%), Facebook® (31%) and Zynga (6%).

“Increased IPO transaction volume throughout the first half of 2011 is a direct result of increased confidence in our country’s economy,” said Ed Bifulk, president of the Merrill DataSite® virtual data room business at Merrill. “As we move into the second half of the year, however, the number of IPO transactions may decrease, depending upon the economy, as well as the actions of many highly valued Internet companies and investor demand.”

The survey was an in-depth inquiry of approximately 40 U.S. securities attorneys who advise companies listed on major U.S. exchanges, and whose firms provided legal counsel to 81 percent of the domestic IPOs completed in the first half of 2011, representing 84 percent of the total transaction value. According to the results of the independent survey, 80 percent of securities attorneys polled think the U.S. IPO market will be slightly to much stronger in 2011 as compared to 2010, but anticipate that the second half of the year will be flat or slightly strong when compared with the first half. Despite the potential slowing of the U.S. IPO market in the second half of the year, survey respondents think that any improvements in the IPO market will be driven by an improving economy (70%) and investor demand for IPOs (20%).

“The increasing number of IPOs on file that we are currently seeing is a lagging indicator reflecting the strengthening of the U.S. economy in 2010,” said Joshua Ford Bonnie, partner, Simpson Thacher & Bartlett. “There are a lot of companies who are looking to leverage more favorable valuations that stabilized market conditions afford.”

Expectations for a robust market in the U.S. for IPOs in 2011 are stronger than in China and the UK. According to the survey, 55 percent of Chinese (and Hong Kong) and 70 percent of UK securities attorneys believe their local IPO markets will be flat or get weaker when compared with 2010.

Attorneys surveyed anticipate that technology and social media (60%) will drive IPO issuances in 2011, followed by energy (14%) and healthcare (11%). However, there are indications of a social media “bubble.” Survey respondents identified the IPOs of LinkedIn® (61%), Groupon® (26%) and Facebook (10%) as the most over-hyped.

Building on the improving strength of the U.S. IPO market, foreign companies are still looking to access the U.S. capital markets and list on major U.S. exchanges in addition to, or in lieu of, listing on their home exchanges, according to 77 percent of participants. Companies in emerging markets will continue to drive foreign issuance on U.S. exchanges, led by China (58%), Brazil (12%), India (8%) and Israel (6%).

“We expect that foreign companies will, at least in the near-term, continue to list on U.S. exchanges due to more clearly defined listing rules and regulations, and the perceived stability and prestige of the U.S. markets,” said Colin Diamond, partner, White & Case.

According to 85 percent of attorneys surveyed, private equity-backed companies are expected to dominate the IPO landscape in 2011. This increase will be driven by favorable market demand (44%), private equity demand for investment exits (36%) and improved valuations for companies looking to come to market (17%).

Other key findings from the survey include:

- 21% foresee some regulatory changes in the coming months that will impact equity issuance in 2011

- 60% think that Hong Kong foreign exchanges will be most dominant in 2011 listings; 28% think it will be LSE

Source: Business Wire

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