Capital Markets Executives at Leading I-Banks Forecast a Jump of 30 Percent in U.S. IPO Proceeds in 2018 According to BDO USA, LLP

Less Than a Quarter Feel SEC Negatively Impacts IPO Activity and
Fewer View ICOs as Threat to IPOs, Majority Believe Trump had Positive
Impact on 2017 IPOs

CHICAGO–(BUSINESS WIRE)–According to a new
survey by BDO USA, LLP, one of the nation’s leading accounting
and advisory firms, capital markets executives at leading
investment banks are projecting significant growth in the number of
initial public offerings (IPOs) on U.S. exchanges in 2018. Close to
three-quarters (72%) predict an increase in the number of U.S. IPOs in
the coming year, with eighteen percent describing the increase as
substantial. One-fifth (20%) forecast activity staying about the same as
2017, while just 8 percent are projecting a decrease in offerings.
Overall, bankers predict an 11 percent increase in the number of U.S.
IPOs in 2018. They anticipate these offerings will average $260 million,
which projects to $46 billion in total IPO proceeds on
U.S. exchanges. This would represent an increase of 30 percent from 2017
proceeds.

“In 2017, the U.S. IPO market bounced back from two consecutive years of
dwindling offerings and proceeds raised. Capital markets executives
clearly feel that the positive growth of the past year will continue in
2018 as they project significant increases in both the number of IPOs
and in total proceeds raised,” said Christopher Tower, a Partner in the
Capital Markets Practice of BDO USA. “Given the strong performance of
last year’s offerings, the overall strength of the economy and low
volatility in the greater stock market, many factors appear to be in
place for increased offering activity in the coming year.”

When asked for the most likely factor to spur increased IPO activity in
2018, 38 percent of the bankers cite continued positive returns from new
offerings. Other potential drivers identified by the executives are the
promise of meaningful tax reform (23%), the pricing of a major “name”
offering (18%), continued regulatory rollbacks under the Trump
administration (15%) and less favorable private valuations forcing
businesses to the public markets (6%).

SEC Impact on IPOs

Despite the increase in IPOs on U.S. exchanges in 2017, offerings remain
well below the all-time highs of the late 1990s. Some blame excessive
SEC disclosure requirements for the drop-off in offerings. In contrast,
others contend that there have been numerous changes to ease SEC
regulations in recent years – such as the JOBS Act, allowing
confidential filings and reducing disclosure requirements – to make it
easier to navigate the IPO process. When asked whether they view SEC
regulations as the reason for the historical drop in IPOs from the
1990s, just 24 percent agreed. The vast majority (76%) cited the wide
availability of private financing at attractive valuations, high M&A
activity, more discerning investors or other factors as playing a larger
role than the SEC.

Trump Bump

In last year’s BDO IPO Outlook survey, more than two-thirds (68%) of the
capital markets community indicated that they felt President-elect Trump
and the Republican-controlled Congress would have a positive impact on
the U.S. IPO market. This year, looking back over 2017, a majority (58%)
of the bankers feel the new President and Congress did have a positive
impact on U.S. IPOs, compared to one-third (33%) who feel they had no
impact on offering activity. Only nine percent indicated the President
and Congress negatively impacted the market.

ICOs? No. Reg. A+? Yes

Initial coin offerings (ICOs) became increasingly common in 2017, with
some start-ups raising hundreds of millions in capital, but less than
one-fifth (19%) of capital markets executives view ICOs as a future
threat to traditional IPOs.

A majority (64%) of bankers expect to see increased interest in
Regulation A+ offerings which can raise up to $50 million in a 12-month
period under scaled down regulations, but are not listed on exchanges. A
slightly smaller majority (55%) view Regulation A+ offerings as an
attractive alternative to a traditional IPO for smaller businesses.

2018 Industry Outlook

For the fifth consecutive year, the healthcare industry was the
bellwether of the U.S. IPO market and most capital markets executives
believe the healthcare sector will have even more IPOs in 2018. Overall,
a majority of bankers are forecasting an increase in IPOs from the
technology (89%), biotech (71%) and healthcare (60%) industries. In
addition, close to half of the executives also project an increase in
offerings in the financial (45%) sector. (see chart below).

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

Other major findings of the 2018 BDO IPO Outlook Survey:

• 2017 IPO Recovery. After two consecutive years of
  diminishing offerings, IPO activity on U.S. exchanges was up
  significantly in 2017. Capital markets executives are split on the
  reason for the increase in offerings. When asked to identify the
  primary factor behind the jump in IPOs, an increased confidence in the
  U.S. economy (38%) is most often cited. Other drivers identified by
  the bankers were positive IPO performance encouraging additional
  offerings (18%), pro-business climate of the Trump administration and
  Republican-controlled Congress (18%), continued low interest rates
  pushing demand for higher yielding assets (13%) and increased investor
  cash flow into stock-focused mutual funds (13%).
• 2018 IPO Threats. When asked to comment upon the
  greatest threat to a healthy U.S. IPO market in 2018, almost one-third
  (33%) of I-bankers cite global political and economic instability,
  while just over one-fifth (22%) identify inflated private valuations
  that will not be supported in public markets. Smaller percentages
  focused on domestic political instability (18%), a failure of the
  Trump administration to deliver on deregulation (14%) and Federal
  Reserve rate hikes (13%).
• PE and VC Will be Lead Sources of IPOs. Private equity
  (40%) and venture capital (37%) portfolios are the most often
  mentioned sources of IPOs in the coming year. Spinoffs/divestitures
  (14%) and owner-managed, privately-held businesses (9%) 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 2018,
  three-quarters of the bankers cite either long-term growth potential
  (43%) or innovative businesses offerings/products (32%). Profitability
  (12%) Stable cash flow (11%), and low debt (2%) are mentioned by
  smaller proportions of participants.

These findings are from the 2018
BDO IPO Outlook, 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 2017, 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, and advisory 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 over 500 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
73,000 people working out of 1,500 offices across 162 countries.

BDO USA, LLP, a Delaware limited liability partnership, is the U.S.
member of BDO International Limited, a UK company limited by guarantee,
and forms part of the international BDO network of independent member
firms. BDO is the brand name for the BDO network and for each of the BDO
Member Firms. For more information please visit: www.bdo.com.

Contacts

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