US IPO Activity Remains Sluggish in October 2019

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US IPO activity remained weak in October 2019 as 20 deals were priced during the month, 9% lower than the number of new deals priced in October of last year.  Only $2.3 bln in new cash was raised in October – 52% lower than the amount raised during the same month last year.

Weak October US IPO Activity

According to Renaissance Capital, 20 new deals were priced in October representing a modest 9% drop from the 22 deals priced during the same month last year, and a 43% surge from the meager 14 deals that were priced in September.  Consistent with the weakness seen in October, the number of new deals priced over the first ten months of this year (139 deals) remains 21.9% below the total seen during the same period of last year (178 deals).

The volume of new capital raised in October 2019 totaled $2.3 bln, 52.1% below the $4.8 bln raised during the same month last year.  The October new capital total is 58.2% lower than the $5.5 bln raised in September.  Over the first ten months of this year, $42.9 bln in new capital has been raised, a drop of 3.8% over the new capital raised during the same period of 2018 ($44.6 bln).

Of the 20 deals priced in October, 65% were from the healthcare sector totaling $1.1 bln in new capital raised, and another 20% of the deals were in financials where $519 mln was raised, and the remaining 15% of the deals were in consumer staples, real estate and technology where $653 mln was raised.

Nineteen (19) new IPOs were filed during October, a 5.6% rise over the 18 deals filed during the same month last year, and a 26.9% decline from the 26 deals filed during September.  During the first ten months of this year 187 new deals were filed, 7% lower than the 201 new deals filed during the same period last year.

IPO performance posted stronger returns than the overall market during October.  The Renaissance IPO Index rose 5.0% during the month compared to a 2.0% rise in the S&P 500 Index during the same period.  Over the first ten months of the year, IPOs rose 27.7%, outpacing the overall stock market as measured by the S&P 500, which rose 21.2% during the same period.

Our Take

The sluggish performance in US IPO activity during October is not good news for the investment banking community, as it continues the weakness seen through most of the year.  The only good news we saw in the October IPO data was the fact that new filings rose modestly from last year’s level, though it remained significantly below the number of new filings recorded in September.

We suspect that the weak performance we have seen in the US IPO market so far this year, combined with weakness in trading commissions, and the drop in sell-side research revenue prompted by MiFID II, will hamper earnings at most investment banks over the next few quarters.  Consequently, we doubt many investment banks will be terribly excited about investing in their US research businesses any time soon – a factor that should keep a lid on research department hiring over the near term.

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About Author

Mike Mayhew is one of the leading experts on the investment research industry. In addition to founding Integrity Research, Mike is on the board of directors of Investorside Research Association, the non-profit trade association for the independent research industry, and a frequent speaker on research industry trends and developments. Mike has over thirty years of research industry experience. Email: Michael.Mayhew@integrity-research.com

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