Low filing activity and the prevalence of a choppy macroeconomic environment had forced the U.S. Initial Public Offering (IPO) market to embark on a slow start at the onset of 2016. Consequently, the market hit its lowest level, since the 2008 Great Depression, in first-quarter 2016, with only eight IPOs hitting the market compared with 34 last year.
Taking a complete U-turn from what we saw in the first quarter, a modest recovery was observed not only in the U.S. IPO market but across the entire global IPO space, in the second quarter.
With companies accepting valuation discounts in exchange for the needed liquidity, filing activity in North America picked up significantly in the April-June period. Mostly healthcare and technology sectors made their mark, with the majority of the IPO “Icebreakers” coming from these sectors.
As per data provided by the IPO-Expert Renaissance Capital, May saw 15 companies going public, nearly double the output of Apr 2016 as well as that of the entire first quarter.
U.S. IPO Shine in 2Q16
The U.S. IPOs offered a strong show in the second quarter, reflecting an average return of 16%. This was the maximum among other regions along with Asia-Pacific, led by cloud communications provider Twilio (TWLO) and optical networking company Acacia Communications ACIA.
More specifically, in terms of performance, Twilio currently represents the hottest tech IPO so far this year, gaining 28.8% in share price, only within a week after entering the market. Acacia also came up with similar results, not as fast as Twilio, but with more than 33% gains within just one and a half month of its IPO.
Other significant IPO “Icebreakers” that significantly contributed to the reversal includes global stock exchange operator Bats Global Markets BATS, dialysis services provider American Renal Associates Holdings Inc. ARA and MGM Growth Properties LLC MGP which operates as a publicly traded REIT.
Encouragingly, these three companies combined an averaged IPO return of 30%. Bats Global sports a Zacks Rank #1 (Strong Buy), while American Renal Associates and MGM Growth Properties carry a Zacks Rank #3 (Hold).
What to Expect Next?
As Warren Buffet once said: “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” Indeed, with the IPO year-to-date return currently reflecting a strong average of 23%, one might expect to witness substantial growth in future IPO issuance in the second half of the year.
While some may fear that the heat of the Brexit vote will slow down IPO activity in the second half of the year, the U.S. market surely has recovered from the what-so-ever little effect that event had on it.
Particularly, the vital U.S. stock indices have reversed their course after the initial shock has been absorbed. Evidently, the S&P 500 gained 1.7%, the Dow Jones Industrial Average added 1.6% and the Nasdaq Composite was up 1.8%, yesterday.
Surely, the aforementioned factors will encourage some disruptive candidates to go public over the next six months. A few such companies are discussed below:
Look Out for These Upcoming IPOs:
Line Corporation: The Japanese messaging-app provider plans to offer 35 million of its common stock in the form of American depositary shares (“ADSs”) in the U.S., in an expected price range of $26.50–$31.50. Line Corp expects the listing to occur on Jul 14, 2016 on the NYSE under the ticker symbol LN.
Long Island Iced Tea Corp.: This NY-based company produces and distributes non-alcoholic iced tea. The company plans to offer 1.5 million of its common stock at a price of $6.50. Long Island Iced Tea expects the listing to occur in near future on the Nasdaq under the ticker symbol LTEA.
AgEagle Aerial Systems Inc: This company designs and manufactures small unmanned aerial vehicles for agricultural applications. The firm plans to offer 2.7 million shares in an expected price range of $5 to $6. AgEagle Aerial Systems expects the listing to occur in the near future on the Nasdaq under the ticker symbol UAVS.
Apart from these three corporations, a few other candidates that were in the news recently for their IPO activities are the app-based taxi services provider Uber Technologies, online provider of vacation homes Airbnb, e-commerce site Pinterest, cloud storage provider Dropbox and information security services provider SecureWorks. These companies may not hit the IPO market any time soon, but are widely assumed to trade in the future.
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