According to a new survey by BDO USA, LLP, one of the nation’s leading accounting and consulting organizations,capital markets executives at leading investment banks are projecting significant growth in the number of initial public offerings (IPOs) on U.S. exchanges in 2017. Two-thirds (67%) predict an increase in the number of U.S. IPOs in the coming year, with almost one-fifth (19%) describing the increase as substantial. Just under one-fifth (18%) forecast activity as flat compared with 2016. Only 15 percent are projecting a decrease in offerings. Overall, bankers predict a 13 percent increase in the number of U.S. IPOs in 2017. They anticipate these offerings will average $235 million, which projects to approximately $28billion in total IPO proceeds on U.S. exchanges. This would represent an increase of more than 49 percent from 2016 proceeds.

When asked for the most likely factor to spur increased IPO activity in 2017, 39 percent of the bankers cite the promise of regulatory rollbacks under the incoming Trump administration. Other factors identified by the executives are consistent positive returns from recent offerings (20%), less favorable private valuations forcing businesses to public markets (19%), the pricing of a major “name” offering (13%) and a pullback in M&A activity (8%) leading to an increase in IPOs as an exit strategy.

More than two-thirds (68%) of the capital markets community believe President-elect Trump and the Republican controlled Congress will have a positive impact on the U.S. IPO market, while just 15 percent predict a negative impact. Sixteen percent of the bankers feel the new President and Congress will have no impact on offering activity.

“Capital markets executives clearly feel that 2017 will put a stop to a two-year decline in the U.S. IPO market. With private funding starting to contract, private equity firms looking to exit mature businesses in their portfolio and the technology sector showing signs of increased offering activity, there were already numerous factors pointing to a turnaround in 2017. The impact that Donald Trump’s election has had on the greater stock market and his promises to rollback regulations have only added to that momentum,” said Lee Duran, a Partner in the Capital Markets Practice of BDO USA. “Although bankers are projecting a significant increase in the number of IPOs, the key is the size of the deals. Larger deals – driven by long awaited offerings from the much publicized “tech-unicorns” – should drive IPO proceeds back to 2015 levels.”

2017 Industry Outlook

For the fourth consecutive year, the healthcare industry has been the bellwether of the U.S. IPO market – spawning double the number of offerings than any other industry. In 2017, a majority of bankers are forecasting an increase in IPOs from the technology (68%), healthcare (57%), biotech (55%) and financial (54%) industries. In addition, close to half of the executives also project increases in offerings in the energy (49%) and industrial (48%) sectors. (see chart below).

Industry

  

Increase

        

Flat

        

Decrease

Technology

68%

 23% 9%
Healthcare

57%

 26% 17%
Biotech

55%

 37% 8%
Financial

54%

 38% 8%
Energy/Natural Resources 49% 30% 21%
Industrial/Manufacturing 48% 34% 18%
Real Estate 37% 31% 32%
Media/Telecom 24% 45%

31%

Consumer/Retail 16% 42%

42%

(Proportions of Capital Markets Executives expecting IPO activity to increase, remain stable or
decrease in specific industries.)

Tech to Take-Off

After three years of minimal activity, IPOs of technology businesses began to show signs of life in the second half of 2016 and a majority (59%) of capital markets executives anticipate a strong year for technology offerings in 2017. When asked which potential offering would have the most positive impact on the U.S. IPO market if it were to go public in 2017, Uber (59%) was the clear favorite. Other popular offering candidates mentioned by significant percentages were Snap (20%) and Airbnb (14%).

Outlook for Unicorns Improves

In recent years, many businesses, especially technology companies, have delayed their IPOs due to the widespread availability of private financing at extremely attractive valuations. Currently there are more than 100 private companies valued by VC firms at $1 billion or more. If private valuations of these so-called “unicorns” continue to exceed those of public markets, 42 percent of the capital markets community contend some of these “unicorns” will fail. Although that is a significant percentage, as another reflection of the improving sentiment toward IPOs, this represents a measurable improvement from last summer when a majority (55%) of the bankers were projecting unicorn failures.

Other major findings of the 2017 BDO IPO Outlook Survey:

  • 2016 Post-Mortem. IPO activity on U.S. exchanges was down significantly in 2016. Capital markets executives are split on the reason for the decrease in offerings. When asked to identify the primary factor behind the drop in IPOs, most bankers cite – access to private funding at attractive valuations (30%), uncertainty brought about by the U.S. Presidential election (27%), Brexit and other global economic uncertainties (20%) and the high volume of M&A activity leading potential offering businesses to opt for a sale instead of an IPO (18%). A much smaller percentage (5%) blame the uncertainty of Federal interest rate hikes.
  • IPO Threats. When asked to comment upon the greatest threat to a healthy U.S. IPO market in 2017, more than a third (37%) of I-bankers cite global political and economic instability, while just under one-quarter (23%) identify inflated private valuations that will not be supported in public markets. Smaller percentages focused on the uncertainty of the incoming Trump administration (18%), a weakening of the U.S. economy (13%) and Federal Reserve rate hikes (9%).
  • PE and VC Will be Lead Sources of IPOs. Private equity (36%) and venture capital (31%) portfolios are the most often mentioned sources of IPOs in the coming year. Owner-managed, privately-held businesses (17%) and spinoffs/divestitures (16%) are the other sources identified by the bankers.
  • Valued Attributes of Offerings. When asked what offering attribute will be most valued by the investment community in 2017, half (50%) of the bankers cite long-term growth potential. Stable cash flow (19%), innovative businesses offerings/products (18%), profitability (9%) and low debt (4%) are mentioned by smaller proportions of participants.

These findings are from the 2017 BDO IPO Outlooksurvey, a national telephone survey conducted by Market Measurement, Inc. on behalf of the Capital Markets Practice of BDO USA. Executive interviewers spoke directly to 100 capital markets executives at leading investment banks regarding the market for initial public offerings in the United States in the coming year. The survey, which took place in December of 2016, was conducted within a scientifically-developed, pure random sample of the nation's leading investment banks.

BDO USA is a valued business advisor to businesses making a public securities offering. The firm works with a wide variety of clients, ranging from entrepreneurial businesses to multinational Fortune 500 corporations, on myriad accounting, tax and other financial issues.

About BDO USA

BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through more than 60 offices and more than 400 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of more than 1,400 offices in over 150 countries.

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