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U.S. IPO Market: Q1 Activity Dried Up as Coronavirus Fears Rattle Markets

Companies and Markets   |   Coronavirus

By Sara B. Potter, CFA  |  April 2, 2020

As we began 2020, all signs pointed to a continuation of 2019’s solid IPO activity. Through the third week of February, when U.S. equity markets hit all-time highs, we saw 33 initial public offerings on U.S. exchanges. We were on track for a very strong Q1. Then a string of market losses in response to the growing COVID-19 coronavirus pandemic quickly turned the nearly 11-year-old bull market into a bear market. IPO activity dried up, with just two companies going public between February 24 and March 31.

Q1 2020 IPO Activity Is the Weakest in Three Years

There were just 35 IPOs in the first quarter, down 35% from the 54 companies in Q4 2019 and 15% lower than Q1 2019 when the U.S. government shutdown depressed activity. In terms of volume, the first quarter saw the worst quarterly performance since Q1 2017.

In terms of money raised, we saw just a slight dip from the previous quarter (-1.6%) due to three mega-IPOs in the quarter: PPD, Inc. (priced February 5, 2020, raised $1.9 billion), Reynolds Consumer Products, Inc. (priced January 30, 2020, raised $1.4 billion), and Churchill Capital Corp. III (priced Jan 29, 2020, raised $1.1 billion). Gross proceeds from IPOs in the first quarter totaled $9.1 billion, up 5.3% from a year earlier. The average money raised for the quarter was $260 million.

Quarterly IPO Activity

Size of IPOs

Finance and Health Technology Sectors Lead Q1 2020 IPO Volume

Of the 35 initial public offerings in the first quarter, 13 came from the Finance sector and nine from the Health Technology sector. This is a continuation of the trend we saw in 2019 when Finance sector IPOs led all sectors—Health Technology coming in second. Finance sector IPOs raised a total of $3.3 billion, with an average size of $257 million. First-quarter IPOs in Health Technology were smaller than average, raising an average of $151 million with the sector only seeing total gross proceeds of $1.4 billion.

The Finance sector led all sectors in terms of total money raised, followed by the Commercial Services sector with $1.9 billion and Producer Manufacturing, which raised $1.4 billion.

IPOs by Sector (Ranked by 1Q 2020 Volume)

 

Number of IPOs

Gross Proceeds (Mil. $)

 

1Q 2020

2019

2018

1Q 2020

2019

2018

TOTAL

35

234

273

$9,102

$65,375

$63,471

Finance

13

81

87

$3,346

$15,240

$21,483

Health Technology

9

61

82

$1,363

$8,074

$8,148

Technology Services

4

40

39

$416

$25,698

$13,231

Commercial Services

3

6

10

$1,882

$1,042

$5,846

Health Services

1

6

2

$282

$1,517

$391

Retail Trade

1

6

8

$64

$2,273

$3,359

Consumer Services

1

5

3

$8

$1,927

$511

Consumer Durables

1

2

7

$100

$34

$1,522

Producer Manufacturing

1

1

6

$1,410

$106

$2,177

Transportation

1

0

3

$230

$0

$950

Miscellaneous

0

7

4

$0

$2,414

$1,072

Consumer Non-Durables

0

4

2

$0

$1,764

$23

Electronic Technology

0

4

4

$0

$269

$382

Distribution Services

0

3

0

$0

$314

$0

Industrial Services

0

3

8

$0

$1,110

$1,601

Energy Minerals

0

2

2

$0

$115

$289

Process Industries

0

2

3

$0

$3,476

$2,139

Non-Energy Minerals

0

1

1

$0

$2

$13

Communications

0

0

1

$0

$0

$3

Utilities

0

0

1

$0

$0

$330

Source: FactSet

Activity by Financial Sponsors Slows

There were 12 venture-capital-backed IPOs in the first quarter, the lowest quarterly number since Q1 2019. There were no private equity-backed IPOs in Q1 2020, which also happened one year ago in Q1 2019. Gross proceeds for VC-backed offerings totaled $1.9 billion, slightly ahead of the $1.85 billion raised in Q4 2019.

VC-backed IPOs

Even in a Bear Market, Selected Technology Companies Are Surging

In today’s COVID-19-focused market, companies that provide key technology services or health technology are surging. Looking at last year’s IPOs, we see that companies providing video communications (Zoom) and online educational services (GSX Techedu) have surged. 10 of the 15 top performers are either biotech or pharmaceutical companies.

Top 15 2019 IPO Performers

Company

FactSet Industry

Offer Price

Price as of 31-Mar-2020

Price Return

First Seacoast Bancorp

Savings Banks

0.84

6.03

622.1%

Karuna Therapeutics, Inc.

Pharmaceuticals: Major

16.00

72.00

350.0%

Zoom Video Communications, Inc.

Packaged Software

36.00

146.12

305.9%

GSX Techedu, Inc.

Internet Software/Services

10.50

42.36

303.4%

BioNTech SE

Biotechnology

15.00

58.40

289.3%

Palomar Holdings, Inc.

Property/Casualty Insurance

15.00

58.16

287.7%

IGM Biosciences, Inc.

Pharmaceuticals: Major

16.00

56.15

250.9%

Applied Therapeutics, Inc.

Biotechnology

10.00

32.69

226.9%

Cortexyme, Inc.

Biotechnology

17.00

45.61

168.3%

Beyond Meat, Inc.

Food: Major Diversified

25.00

66.60

166.4%

TP Therapeutics, Inc.

Pharmaceuticals: Major

18.00

44.66

148.1%

NextCure, Inc.

Biotechnology

15.00

37.07

147.1%

Aprea Therapeutics, Inc.

Pharmaceuticals: Major

15.00

34.76

131.7%

Oyster Point Pharma, Inc.

Pharmaceuticals: Major

16.00

35.00

118.8%

Viela Bio, Inc.

Biotechnology

19.00

38.00

100.0%

Source: FactSet

IPO Activity Reflects the Market Environment—What Does This Mean for the Rest of 2020?

Looking ahead at future IPOs, there are 43 companies that released initial preliminary filings in 2019 and are still in registration (this excludes offerings that have been postponed or withdrawn). In addition, another 40 companies have released their initial preliminary filings so far in 2020. The current market conditions may keep many of these companies on the sideline for some time. We saw last year that investors are only looking to reward companies with growing revenues and a path to profitability as well as a solid leadership team. Despite the current market turmoil, there may still be opportunity for well-run technology companies

Note: All statistics are based on FactSet data for IPOs priced during the specified period for companies going public on exchanges in the United States.

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Sara Potter, CFA

Senior Content Specialist, Market Analysis

Ms. Sara Potter is Senior Content Specialist and Market Analyst at FactSet. In this role, she is in charge of thought leadership economic analysis and reports and a regular contributor to FactSet Insight where she provides commentary on a wide range of current market topics. Since joining in 1999, she has managed the economic database development team where she was responsible for the integration of third-party economic content as well as the development of FactSet Economics data. Ms. Potter is an active member of the FactSet Charity Committee which focuses on evaluating FactSet’s charitable event sponsorship and employee volunteerism programs. She earned an M.A. in International Economics and Finance from Brandeis University and holds a B.A. in Economics and French from Dartmouth College. She is a CFA charterholder.

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