US IPO activity started off the 3rd Qtr in a mixed fashion as 21 new deals were priced in July following a similar number of deals priced during the prior month. Despite the healthy number of new deals, only $4.8 bln in cash was raised during the month – a rather paltry sum compared to the $12.6 bln raised during June.
Mixed July US IPO Activity
According to Renaissance Capital, 21 new deals were priced in July representing a modest 5% rise from the 20 deals priced during the same month last year, and no change from the 21 deals that were priced in June. Despite the healthy number of deals priced during July, the number of new deals priced over the first seven months of this year (102 deals) remains 17.7% below the total seen during the same period of last year.
The volume of new capital raised in July totaled $4.8 bln, 11.6% higher than the $4.3 bln raised during the same month last year. The July new capital total is 61.9% lower than the $12.6 bln raised in June. Over the first seven months of this year, $42 bln in new capital has been raised, a rise of 27.7% over the new capital raised during the same period of 2018.
Of the 21 deals priced in July, six deals were from the technology sector totaling $2.03 bln in new capital raised, and another five deals were in healthcare where $1.07 bln was raised. In addition, three deals priced during July was from the financial sector ($799 mln raised); two deals were from the energy sector ($140 mln raised); one deal was from the consumer discretionary sector ($261 mln raised); and, one deal was from the utilities sector ($168 mln raised).
Nineteen (19) new IPOs were filed during July, a 46% rise over the 13 deals filed during the same month last year, and a slight rise from the 18 deals filed during June. During the first seven months of this year 129 new deals were filed, 3.0% lower than the 133 new deals filed during the same period last year.
IPO performance posted slightly stronger returns than the overall market during July. The Renaissance IPO Index rose 3.66% during the month compared to a 2.43% gain in the S&P 500 Index during the same period. Over the first seven months of the year, IPOs rose 41.3%, greatly outpacing the overall stock market as measured by the S&P 500, which rose 20.2% during the same period.
Our Take
The mixed performance in US IPO activity during July is not terribly surprising given the fact that a number of huge deals came to market in May and June, including Uber ($8.1 bln raised), Slack ($7.37 bln raised), Avantor ($2.90 bln raised) and Chewy ($1.02 bln raised).
One piece of bad news seen in recent IPO data is the weakness in new filings evident during June and July. This has pushed the performance of this series over the first seven months of the year below the total seen during the same period last year. This data could be a precursor to a downturn in IPO activity in the coming months.
The big question is how will US IPO activity impact bank earnings and activity in the research business? We suspect that the mixed performance in IPOs so far this year, combined with weakness in trading commissions, and the fall in sell-side research revenue prompted by MiFID II, should dampen investment bank earnings in the next few quarters thereby limiting any meaningful increase in research analyst hiring at most US investment banks.