US IPO activity recorded an extremely weak performance as only 4 new deals were priced in August 2019, representing the fewest number of deals seen in August since 2011 and a 20% drop from the same month last year. Only $0.4 bln in new cash was raised in August – 73% lower than the amount raised during the same month last year.
Weak August US IPO Activity
According to Renaissance Capital, only 4 new deals were priced in August representing a sharp 56% drop from the 9 deals priced during the same month last year, and an 81% plunge from the 21 deals that were priced in July. Consistent with the weakness seen in August, the number of new deals priced over the first eight months of this year (106 deals) remains 20.3% below the total seen during the same period of last year.
The volume of new capital raised in August 2019 totaled $0.4 bln, 73.3% below the $1.5 bln raised during the same month last year. The August new capital total is 91.7% lower than the $4.8 bln raised in July. Over the first eight months of this year, $42.4 bln in new capital has been raised, a rise of 23.2% over the new capital raised during the same period of 2018.
Of the 4 deals priced in August, 50% were from the financial sector totaling $276 mln in new capital raised, and another 25% of the deals were in healthcare where $70 mln was raised, and the remaining 25% of the deals were in technology where $85 mln was raised.
Fifteen (15) new IPOs were filed during August, a 46.4% drop over the 28 deals filed during the same month last year, and a 21.1% decline from the 19 deals filed during July. During the first eight months of this year 144 new deals were filed, 10.0% lower than the 160 new deals filed during the same period last year.
IPO performance posted slightly weaker returns than the overall market during August. The Renaissance IPO Index fell 5.3% during the month compared to a 1.8% drop in the S&P 500 Index during the same period. Over the first eight months of the year, IPOs rose 32.3%, greatly outpacing the overall stock market as measured by the S&P 500, which rose 16.74% during the same period.
The weak performance in US IPO activity during August is not good news for the investment banking community, but it should not be surprising given the weakness we have seen in new filings earlier in the year – a trend that continued into August. The only good news we saw in the August IPO data was the fact that new cash raised over the first eight months of 2019 remains well above the total capital raised during the same period last year.
Despite this glimmer of hope, how will this data impact bank earnings and activity in the research business? We suspect that the overall weak performance we have seen in the US IPO market so far this year, combined with weakness in trading commissions, and the fall in sell-side research revenue prompted by MiFID II, should dampen US investment bank earnings 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.