US IPO activity plunged by 79% in November compared to 2015, to the lowest level seen since 2008 – a development that’s likely to keep a lid on Wall Street earnings during the 4th Quarter 2016 and be an ongoing drag on financial services hiring for the foreseeable future.
IPO Activity Falls Sharply
Based on data published by Renaissance Capital Markets, newly priced IPO issues in the US plunged from 14 IPOs in November of 2015 to a mere 3 IPOs this month – the lowest level seen in a comparable month since 2008. Thus far in the 4th Qtr of 2016, IPO issues priced dipped 26.7% when compared to the same period last year, whereas on a year-to-date basis, newly priced IPOs have dropped 42.3% from 168 IPOs in the first eleven months of 2015 to 97 IPOs so far this year.
From the beginning of 2016 through November 27th a total of $17.3 bln in new issue proceeds have been raised in the US capital markets. This amount is 41.9% lower than the $29.8 bln that was raised during the same period last year. Thus far in November 2016, new issue proceeds raise have totaled $0.3 bln – 78.6% lower than the $1.4 bln raised in November of last year. On a quarter-to-date basis, $4.9 bln in proceeds have been raised, 22.2% lower than what was raised during the first two months of the 4th Qtr last year.
In November of 2016 11 new IPO issues have been filed, a 37.5% rise when compared to the 8 filings that were recorded in November of 2015. So far this year, 119 new IPO issues have been filed, 49.1% lower than the 236 new IPO issues which were filed during the same period last year.
Industry Breakdown of IPO Activity
During the past 12 months, 99 new IPOs have been priced. Over 40% of these new issues were healthcare related deals (41 deals raising $3.4 bln), while over 20% were technology related (21 deals raising $3.5 bln).
Our Take
The weakness of IPO activity so far this year must be concerning to investment banks as new issue underwriting has historically been an extremely profitable business. The big question for many banks is whether IPO activity will pick up in the next few quarters now that the uncertainty surrounding the election is behind us.
In the short run, we suspect that the weakness seen in the IPO market seen this month is likely to dampen many Wall Street firms’ 4th Qtr earnings and should keep a lid on near-term investment bank hiring, including in their equity research departments. This factor, combined with the uncertainty caused by various regulatory changes like MiFID II, could motivate an increased number of Wall Street analysts to look for more reliable corporate opportunities or the promise of setting up their own independent research shops.