Wednesday, May 6, 2009

Aging IPO Pipeline Shrinks in Q1, According to Ernst & Young LLP Data

Of the 57 companies in the IPO pipeline on 31 December 2008, only 44 remained by the end of the first quarter (30 March 2009), a decline of 30%, according to the quarterly Ernst & Young LLP US IPO Pipeline study. The reduction is a symptom of aging registrations more than withdrawals.

Among the 16 companies no longer listed, 10 registrations surpassed the 1-year expiration date for inclusion in the study. Those 10 deals represent $1.949 billion. During the first quarter, two deals went public, one postponed, three registrants withdrew and three new registrants took their place. New registrants represented $162.1 million (an average of $54 million per company) compared to the $885.8 million lost by the withdrawals.

That reduction combined with the successful pricing of one of the largest pipeline registrants, Mead Johnson, drew the average deal size down slightly from $272.7 million to $265.8 million. However, the median deal size actually increased from $170.0 million to $187.5 million, suggesting that most companies in the pipeline are relatively substantial.

Year over year IPO Pipeline comparison:

Time Period # of Deals Dollar Amount Average Deal Size
End of Q1 2008 90 $17.3 billion $192.1 million
End of Q1 2009 44 $11.7 billion $265.8 million

Comparing the three withdrawals in Q1 to the 15 withdrawals the previous quarter, Ernst & Young LLP's Maria Pinelli, Americas Director, Strategic Growth Markets, acknowledged that no one anticipated a pipeline uptick during this quarter, due to general economic weakness. "There are signs of a plateau, with far fewer withdrawals from the pipeline. We also saw a few IPOs, including the $720 million Mead Johnson deal and the recent pricings of other companies that had people buzzing. The key in this market is pricing and the maturity of the business; solid businesses with great cash flow and positive returns offer proven business opportunity," she said.

The three new registrants in Q1 represent technology (Medidata Solutions Inc), services (OpenTable Inc) and oil and gas (Changing World Tech Inc). Overall, technology leads the pipeline with nine registrations. Diversified industrials products (seven registrations), professional firms and services (five registrations), utilities (four registrations) and oil and gas (three registrations) follow. Mining registrations make a significant showing, seeking to raise $1.46 billion between two registrations - the third highest amount of any industry in the pipeline.

Geographically, California is ahead with seven registrations, followed by Texas (five registrations), Massachusetts (three registrations) and New York (two registrations). China has three companies in the pipeline; Hong Kong, Canada and Bermuda each have one company in registration.

According to Jackie Kelley, Americas IPO Leader, Ernst & Young LLP, "Companies we talk to are in a wait and see mode. By investing in their businesses now, they will be better prepared to take advantage of future market momentum."

The Ernst & Young LLP U.S. IPO Pipeline Report is issued quarterly as a forward-looking indicator of the IPO market. The IPO Pipeline data is refined to eliminate bias from financial services organizations, real estate investment trusts and other holding companies that represent assets under management instead of core businesses. It also eliminates any registrants sitting on the books for more than 12 months - long-term applicants that may bloat numbers, but don't reflect current market trends.

About Ernst & Young's Strategic Growth Markets Practice

Ernst & Young LLP's Strategic Growth Markets (SGM) practice guides leading high-growth companies. Our multi-disciplinary team of elite professionals provides perspective and advice to help our clients accelerate market leadership. SGM delivers assurance, tax, transactions and advisory services to thousands of companies spanning all industries. Ernst & Young is the undisputed leader in taking companies public, advising key government agencies on the issues impacting high-growth companies and convening the experts who shape the business climate. For more information, please visit us at

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