Capital Markets Executives at Leading Investment Banks Predict Slight Growth for U.S. IPO Market in 2012 According to BDO USA, LLP

CHICAGO--(BUSINESS WIRE)--According to a new study by BDO USA, LLP, one of the nation’s leading accounting and consulting organizations, capital markets executives at leading investment banks have taken a hit to their confidence. Just half predict an increase in U.S. initial public offerings (IPOs) in 2012, and only 16 percent describe the increase as substantial. One-third (35%) forecast activity as flat with 2011, while 15 percent expect a further decrease in offerings on domestic exchanges. Overall, bankers predict a 6 percent increase in the number of U.S. IPOs in 2012. They anticipate these offerings will average $291 million, approximately the same size as 2011, which projects to $38.6 billion in total IPO proceeds on U.S. exchanges in 2012.

“Through the first half of last year, U.S. IPO activity was on target or exceeding last year’s forecast, but deals dried up when the market turned volatile in late summer. Economic concerns, both domestic and global, are the chief factors in the loss of confidence according to the bankers.”

“This is, by far, the least positive forecast we’ve seen in the three years we’ve conducted the BDO IPO Outlook survey. Not only are the bankers predicting less growth, but they are only forecasting an overall return of 3% for the average IPO. Last year they were projecting an overall average return of 18 percent.” said Brian Eccleston, Partner in the Capital Markets Practice at BDO USA. “Through the first half of last year, U.S. IPO activity was on target or exceeding last year’s forecast, but deals dried up when the market turned volatile in late summer. Economic concerns, both domestic and global, are the chief factors in the loss of confidence according to the bankers.”

Year-Over-Year Survey Comparison Shows Loss of Confidence

In last year’s BDO IPO Outlook survey, almost three-quarters (72%) of capital markets executives predicted an increase in the number of U.S. IPOs. In 2012, just half of the bankers predict an increase, reflecting a significant drop in confidence. Moreover, they are forecasting only a 3 percent return on the average IPO in 2012, a substantial drop from last year’s forecast. (See chart below.)

BDO IPO Outlook Year over Year Comparisons	2011	2012
Percentage predicting increase in US IPOs	72%	50%
Overall projected growth in number of IPOs	11%	6%
Projected size of average IPO	$268M	$291M
Projected one-day IPO pop	9%	10%
Projected overall IPO return	18%	3%

In terms of how individual industries will fair in 2012, almost three-quarters of the investment banking community are predicting a continued increase in offerings in the technology (73%) and energy (72%) verticals. A lesser majority (59%) forecast a jump in biotech and exactly half of the bankers expect growth in healthcare offerings. No other industry is predicted to achieve an increase in IPOs by a majority of the survey participants. Overall, all but two verticals (media/telecom and consumer/retail) experienced a downturn in confidence when comparing the 2012 and 2011 IPO forecasts by industry. (See chart below.)

Industry	% Projected 2011 Increase	% Projecting 2012 Increase
Technology	87%	73%
Energy/Natural Resources	83%	72%
Biotech	65%	59%
Healthcare	60%	50%
Media/Telecom	34%	39%
Real Estate	37%	35%
Industrial/Manufacturing	44%	27%
Consumer/Retail	23%	23%
Financial	42%	16%

(Proportions of Capital Markets Executives at leading Investment banks expecting U.S. IPO activity to increase in 2012 in specific industries versus the percentage from 2011 survey.)

These are just a few of the findings of The 2012 BDO IPO Outlook survey which examines the opinions of 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 was conducted in December 2011.

Other major findings of The 2012 BDO IPO Outlook Survey:

It’s the Economy. After promising growth early in 2011, IPO activity in the U.S. dipped dramatically in the second half of the year following increased stock market volatility. When asked to identify the factor having the greatest impact on this downturn, almost half (49%) of the bankers cite a continued lack of confidence in the U.S. economy and an almost equal number (43%) cite the negative impact of unstable European economies on U.S. markets.

Money & Politics. When asked to identify the greatest threat to a healthy U.S. IPO market in 2012, two-thirds (67%) of capital markets executives cite global political and financial instability. High unemployment (9%), constrained bank lending (9%), threat of tax increases (9%) and competition from foreign exchanges (6%) are identified as threats by small minorities of the participants.

Bigger Deals. Although the number of IPOs on U.S. exchanges dropped in 2011, the size of the average U.S. offering actually increased. Most investment bankers attribute this growth in deal size to either offerings from more mature companies (42%) or PE firms bringing larger deals to market (35%). A smaller number (17%) cite more stable financials at IPO businesses. Overall, the bankers estimate U.S. IPOs in 2012 to average $291 million in size.

Not So Happy Returns? Bankers predict U.S. IPOs one-day after market returns will average 10% in 2012, which would mirror 2011 performance. Overall, they predict the average IPO will return just 3% from its offer price. That is the lowest forecast in the three years of the BDO IPO Outlook survey, but still represents a healthy improvement on the negative average return of 2011.

PE Remains Lead Source of IPOs. For the third consecutive year, private equity portfolios (43%) are the most often predicted source for IPOs in the coming year. Venture capital portfolios (20%), spinoffs and divestitures (20%) and owner managed, privately-held businesses (16%) are the other sources identified by the bankers.

Offering Attributes. When asked what type of offering attributes will be most valued by the investment community in 2012, 40 percent cite long-term growth potential and almost one-third (31%) say stable cash flow. Profitability (20%) and strength of industry vertical (9%) are cited by smaller numbers of participants.

The BDO IPO Outlook Survey is a national telephone survey conducted by Market Measurement, Inc., an independent market research consulting firm, whose executive interviewers spoke directly to capital markets executives, using a telephone survey 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 multinational Fortune 500 corporations to more entrepreneurial businesses, on a myriad of 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 41 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 1,118 offices in 135 countries.

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