2017 bdo ipo outlook€¦ · according to the 2017 bdo ipo outlook, bdo usa’s annual survey of...

BDO CAPITAL MARKETS PRACTICEBDO USA is a valued business advisor to companies making public securities offerings. The firm works with a wide variety of clients, ranging from entrepreneurial businesses to multinational Fortune 500 corporations, on a myriad of accounting, tax and other financial issues.

For more information on BDO’s Capital Markets services, please contact one of the regional leaders below:

LEE DURAN, San Diego 858-431-3410 / [email protected]

PAULA HAMRIC, Chicago 312-616-3947 / [email protected]

CHRISTOPHER TOWER, Orange County 714-668-7320 / [email protected]

TED VAUGHAN, Dallas 214-969-7007 / [email protected]

www.bdo.com

POSITIVE GROWTH FORECAST FOR U.S. IPOs IN 2017

2017 BDO IPO OUTLOOK

Larger Offerings Could Increase Proceeds by Close to 50 Percent

By any measure, 2016 was a difficult year for initial public offerings (IPOs) on U.S. exchanges with virtually every statistical category – offerings (-38%), proceeds (-38%) and filings (-48%) – down significantly from 2015. Moreover, this was the

second consecutive down year for the U.S. IPO market. Compared to 2014, when both offerings and proceeds reached their highest levels since the dot-com boom of 2000, offering activity and proceeds are off 62 percent and 78 percent respectively.*

The year got off to a rough start due to stock market volatility – the Dow plunged more than 1000 points in one week – leading to a first quarter with just 8 IPOs. While the stock market recovered nicely from that stumble, the IPO market’s recovery was more subdued.

*Renaissance Capital is the source of all historical data related to number and size of U.S. IPOs

According to the 2017 BDO IPO Outlook, BDO USA’s annual survey of capital markets executives at leading investment banks, there were multiple contributing factors for the decrease in 2016 offerings. When asked to identify the primary reason for the drop in IPO activity last year, most bankers cite – access to private funding at attractive valuations (30%), uncertainty brought about by the U.S. Presidential election (27%), Brexit and other global economic uncertainties (20%) and the high volume of M&A activity leading potential offering businesses to opt for a sale instead of an IPO (18%). A much smaller percentage (5%) blame the uncertainty of Federal interest rate hikes.

2017 FORECAST

Looking forward, the capital markets community is projecting significant growth in the number of initial public offerings (IPOs) on U.S. exchanges in 2017. Two-thirds (67%) predict an increase in the number of U.S. IPOs in the coming year, with almost one-fifth (19%) describing the increase as substantial. Just under one-fifth (18%) forecast activity as flat compared with 2016. Only 15 percent are projecting a decrease in offerings.

Overall, bankers predict a 13 percent increase in the number of U.S. IPOs in 2017. They anticipate these offerings will average $235 million, which projects to approximately $28 billion in total IPO proceeds on U.S. exchanges. This would represent an increase of more than 49 percent from 2016 proceeds and a return to the approximate level of 2015.

IPO activity on U.S. exchanges fell considerably in 2016. What do you feel had the greatest impact on this decrease?

Source: 2017 BDO IPO OUTLOOK

Access to private funding at attractive valuations

Uncertainty about U.S. Presidential election

Brexit and global economic uncertainty

High volume of M&A activity led potential offerings to opt for a sale vs. risks of IPO

Uncertainty about Fed interest rate hikes

30%

27%

20%

18%

5%

“Capital markets executives clearly feel that 2017 will put a stop to a two-year decline in the U.S. IPO market,” said Christopher Tower, a Partner in the Capital Markets Practice of BDO USA. “Although bankers are projecting a significant increase in the number of IPOs, the key is the size of the deals. They are anticipating larger offerings in 2017. These larger offerings should

drive IPO proceeds back to 2015 levels.”

2 2017 BDO IPO OUTLOOK

THE TRUMP EFFECT

When asked for the most likely factor to spur increased IPO activity in 2017, 39 percent of the bankers cite the promise of regulatory rollbacks under the incoming Trump administration. Other factors identified by the executives are consistent positive returns from recent offerings (20%), less favorable private valuations forcing businesses to public markets (19%), the pricing of a major “name” offering (13%) and a pullback in M&A activity (8%) leading to an increase in IPOs as an exit strategy.

More than two-thirds (68%) of the capital markets community believe President-elect Trump and the Republican controlled Congress will have a positive impact on the U.S. IPO market, while just 15 percent predict a negative impact. Sixteen percent of the bankers feel the new President and Congress will have no impact on offering activity.

What one factor will be the most likely to spur increased IPO activity in 2017?

Do you believe President-elect Trump and the Republican controlled Congress will have a positive, negative or no impact on the U.S. IPO market?



Promise of regulatory rollback under Trump administration

Consistent returns from recent offerings

Pullback in M&A activity increases use of IPOs

Less favorable private valuations force businesses

to public markets

Pricing of a major offering such as Uber,

Snapchat or Airbnb

“With private funding starting to contract, private equity firms looking to exit mature businesses in their portfolio and the technology sector showing signs of increased offering activity, there were already numerous factors pointing to a turnaround in 2017,” said Ted Vaughan, a Partner in the Capital Markets Practice of BDO USA. “The impact that Donald Trump’s election has had on

the greater stock market and his promises to rollback regulations have only added to that momentum.”

39%

20%

19%

13%

8%

68% POSITIVE

15% NEGATIVE

16% NO

IMPACT


INDUSTRIES

For the fourth consecutive year, the healthcare industry has been the bellwether of the U.S. IPO market – spawning double the number of offerings than any other industry.

In 2017, a majority of bankers are forecasting an increase in IPOs from the technology (68%), healthcare (57%), biotech (55%) and financial (54%) industries. In addition, close to half of the executives also project increases in offerings in the energy (49%) and industrial (48%) sectors. (see chart below).

Proportions of Capital Markets Executives expecting IPO activity to increase, remain stable or decrease in specific industries in 2017.

INDUSTRY INCREASE FLAT DECREASE

Technology 68% 23% 9%

Healthcare 57% 26% 17%

Biotech 55% 37% 8%

Financial 54% 38% 8%

Energy/Natural Resources 49% 30% 21%

Industrial/Manufacturing 48% 34% 18%

Real Estate 37% 31% 32%

Media/Telecom 24% 45% 31%

Consumer/Retail 16% 42% 42%


TECH TO TAKE-OFF

After three years of minimal activity, IPOs of technology businesses began to show signs of life in the second half of 2016 and a majority (59%) of capital markets executives anticipate a strong year for technology offerings in 2017.

When asked which potential offering would have the most positive impact on the U.S. IPO market if it were to go public in 2017, Uber (59%) was the clear favorite. Other popular offering candidates mentioned by significant percentages were Snap (20%) and Airbnb (14%).

UNICORN SIGHTINGS?

In recent years, many businesses, especially technology companies, have delayed their IPOs due to the widespread availability of private financing at extremely attractive valuations. Currently there are more than 100 private companies valued by VC firms

at $1 billion or more. If private valuations of these so-called “unicorns” continue to exceed those of public markets, 42 percent of the capital markets community contend some of these “unicorns” will fail. Although that is a significant percentage, as another

reflection of the improving sentiment toward IPOs, this represents a measurable improvement from last summer when a majority (55%) of the bankers were projecting unicorn failures.

What potential offering do you think would have the most positive impact on the U.S. IPO market if it were to go public in 2017?


59% UBER

20% SNAPCHAT

14% AIRBNB

3% PINTEREST

2% DROPBOX

2% SPOTIFY

“Offerings from the technology industry, historically the leader of the IPO market, have been curtailed in recent years due to the wide availability of private financing at attractive valuations. However, with private financing contracting, we began to see some tech businesses move forward with IPOs in the second half of 2016. Successful offerings from Twilio and Nutanix demonstrate

that investors have a healthy appetite for new entrants from the tech sector,” said Lee Duran, A partner in the Private Equity Practice of BDO USA. “Snap, the maker of Snapchat, is widely expected to go public in late Q1 at a valuation between $20 billion and $25 billion. The performance of the Snap IPO could well determine whether more unicorns leave their private stables for the promise of the public markets.”


SOURCES AND ATTRIBUTES OF 2017 IPOS

Private equity (36%) and venture capital (31%) portfolios are the most often mentioned sources of IPOs in the coming year. Owner-managed, privately-held businesses (17%) and spinoffs/divestitures (16%) are the other sources identified by the bankers.

When asked what offering attribute will be most valued by the investment community in 2017, half (50%) of the bankers cite long-term growth potential. Stable cash flow (19%), innovative businesses offerings/products (18%), profitability (9%) and low debt (4%) are mentioned by smaller proportions of participants.

What will be the greatest source of IPO’s in 2017?

What one attribute of potential offerings will be most valued by the investment community in 2017?



36%

31%

17%

16%

Private equity portfolios

Venture capital portfolios

Owner-managed, privately held companies

Spinoffs and divestitures

Long-term growth potential

Stable cash flow

Innovative business offering or product

Profitability

Low debt

50%

19%

18%

9%

4%


IPO THREATS

When asked to comment upon the greatest threat to a healthy U.S. IPO market in 2017, more than a third (37%) of I-bankers cite global political and economic instability, while just under one-quarter (23%) identify inflated private valuations that will not be supported in public markets. Smaller percentages focused on the uncertainty of the incoming Trump administration (18%), a weakening of the U.S. economy (13%) and Federal Reserve rate hikes (9%)

What do you consider to be the greatest threat to a healthy U.S. IPO market in 2017?


Global political and economic instability

Inflated private valuations not supportable in public markets

Federal Reserve rate hikes

Uncertainty with incoming Trump Administration

Weakening U.S. economy

37%

23%

18%

13%

9%

“As the world seemingly grows smaller by the day, global political

and economic uncertainty is increasingly viewed as the greatest threat to the U.S. IPO market,” said Paula Hamric, a Partner in the National SEC Department of BDO USA. “Surprising political outcomes, such as Brexit, and deadly terrorist attacks in various countries during the past year have demonstrated how international news can swiftly impact U.S. markets and introduce a level of volatility that is not conducive for businesses considering a public offering.”


ABOUT THE SURVEY

These findings are from The 2017 BDO IPO Outlook survey, a national telephone survey conducted by Market Measurement, Inc. on behalf of the Capital Markets Practice of BDO USA. Executive interviewers spoke directly to 100 capital markets executives at leading investment banks regarding the market for initial public offerings in the United States in the coming year. The survey, which took place in December of 2016, was conducted within a scientifically-developed, pure random sample of the nation’s leading investment banks.

BDO USA is a valued business advisor to businesses making a public securities offering. The firm works with a wide variety of clients, ranging from entrepreneurial businesses to multinational Fortune 500 corporations, on myriad accounting, tax and other financial issues.

ABOUT BDO USA

BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through more than 60 offices and more than 400 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of more than 1,400 offices in over 150 countries.

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: www.bdo.com.

Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm’s individual needs.

© 2017 BDO USA, LLP. All rights reserved.

2017 bdo ipo outlook€¦ · according to the 2017 bdo ipo outlook, bdo usa’s annual survey of...

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