US PE and VC-Backed IPO Activity Rebounds After 2016's Dismal Performance

SEATTLE, Nov. 30, 2017 /PRNewswire/ -- According to PitchBook's 2017 US IPO Trends Report, 74 private equity and venture capital backed companies have completed IPOs through the first ten months of this year, raising just under $18 billion. While the number of IPOs is 25% lower than that of the post-financial crisis average, current activity is outpacing that of 2016. Despite most headlines touting the struggles of high-profile consumer-facing IPOs, like Snap and Blue Apron, IPOs in aggregate outperformed other equities. The continued slowdown of IPOs, even when traditional factors exhibit an open opportunity, suggests more comprehensive issues with the process and the evolving mindset of private companies. These challenges have always been apparent in the IPO market, but the sheer availability and ease of access to capital has presented sponsor-backed companies with actual alternatives.

"2017 has demonstrated a slight recovery in IPO activity for sponsor-backed companies, despite struggles from some high-profile companies in the public market," says PitchBook Analyst, Cameron Stanfill. "Yet, performance for IPOs in aggregate have been very positive for 2017 ? suggesting a normalization for the US IPO market."

Staying Private Longer Suggests Structural Changes For VC-Backed Companies

Of the eight billion raised by 42 VC-backed IPOs this year, ten debuted at a value over one billion dollars. This figure ties 2014 for the most unicorns to list in a year, but the median post-money valuation is 70% higher in 2017 compared to that of 2014. The "private for longer" phenomenon remains in full effect for VC-backed companies, as they continue to choose the familiarity and independence of raising funding over an exit. Although this is not a new trend, the uptick in 2017 across VC raised prior to IPO suggests more structural changes within the space. Most notably, the median time between venture rounds and IPOs has grown by almost 150% in just two years, exemplifying how deal sizes have extended cash runways. With 19 VC-backed IPOs in 4Q 2017 through November 27^th ? the highest quarterly figure this year ? signals possible momentum for the remainder of the year and early next.

PE-Sponsored IPOs Overshadowed by M&A

PE-sponsored companies have raised $9.4 billion across 32 public listings through the first ten months of this year. Similar to VC, PE activity is expected to surpass 2016's totals, but is still likely to remain well below the numbers seen between 2011 and 2014. Experts have cited several reasons for the recent cooling of the IPO market, but from a PE perspective the relative complexity and cost of bringing a company public compared to an M&A exit is likely the biggest factor. Despite a slow IPO market, the median offering size for PE-sponsored listings rose to $209.3 million ? the second largest figure recorded. Activity looks to be stabilizing as 2017 is in-line with the last two years, and therefore, we expect limited deviation from current IPO levels, as other exit routes will remain attractive given the record amounts of cash in the asset class.

NYSE ? Ill fit for Tech Listings?

While financial metrics understandably garner the most attention when a company is going public, the exchange the company chooses to list on has significance as well. The New York Stock Exchange (NYSE) functions as an auction market, while the NASDAQ acts as a market maker in a dealer's market. These differences have evoked perceptions that the NYSE is the more traditional option, whereas the NASDAQ is depicted as a technology-focused upstart. In recent years, the NYSE has landed a handful of high-profile tech IPOs, including Snap and Twitter, yet both exchanges appear to be primarily attracting offerings in their core areas. Since 2015, 77% of IPOs from VC-backed companies ? which tend to be younger and focused on innovative industries - have occurred on the NASDAQ, whereas only 16% of VC-backed listings were accounted for on the NYSE during the same period.

Overshadowed Successes Not Heard Above High-Profile Plunges

2017 IPO activity has not only rebounded from the sluggish environment in 2016, but those companies that have priced are faring well in the secondary market. Although the sentiment surrounding IPOs this year has tended to lean negative, the disconnect can be explained by the underperformance of high-profile consumer-facing companies. Snap, J. Jill, Yogaworks, and Blue Apron all have lost around half of their equity value since debuting on the public markets ? with Blue Apron performing the worst, down by 70% from initial pricing as of this release. On the other side of the spectrum, Roku, the streaming platform and set-top box manufacturer, has returned 166% from its IPO price with the help of one of the largest "IPO pops" of 2017.

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