SERVING BUSINESS LAWYERS IN TEXAS
The IPO Market In 2014: Are Boom Times Back?
By Bill Howell – (September 16, 2014) – A strong
market for initial public offerings has long been
seen as a bellwether for good times in the broader
market. When companies are going public, the
perception is that investors, management teams
and bankers have confidence in the market and
New companies access the public markets to fuel
growth opportunities, and the wealth that can
be generated by a completed IPO often trickles
down to other segments of the economy like
While a strong IPO market signals a strong
broader market, the reverse can also be true.
History has shown us that the market for IPOs
can be negatively impacted immediately when
the broader capital markets or the economy
experience the first signs of trouble, and the
recovery of the IPO market can lag behind
recovery in the economy. What happened in
2008 and the period since is a case in point.
According to IPO investment firm Renaissance
Capital (www.renaissancecapital.com), in 2008,
when the capital markets crashed and the bottom
fell out of the economy, only 31 IPOs priced.
Despite significant improvements in the
U.S. economy in 2011 and 2012, only 125 and
128 IPOs priced in those years, respectively,
materially fewer than the 213 that priced in 2007.
However, if the first half of 2014 is any indication,
the IPO market appears to have fully recovered
from the stock market crash of 2008.
The number of IPOs priced in 2013 reached
222, more than any other year since 2005, and
we are on pace to surpass that number in 2014.
Interestingly, despite the fact that 94 more IPOs
priced in 2013 than 2012, both years started in
much the same way.
In the first half of 2013, 72 IPOs priced, compared
to the 73 IPOs that priced in the first half of 2012.
What this really means
is that the true recovery
began in the second half of
2013, when 150 deals were
priced. That momentum
has continued to drive
the IPO market into this
year with 147 deals pricing
already in the first half
of 2014, which already
exceeds the total number of
IPOs priced in each of 2011 and 2012.
In Texas, the story is similar to what we are
seeing in the broader U.S. market.
According to Mergermarket, 16 Texas-based
companies priced initial public offerings in the
first half of 2014. This is a marked improvement
over the five Texas companies that priced IPOs in
the first half of 2013.
Again, however, as was the case in the broader
U.S. market, in Texas the first half of 2013 told
a very different story than the second half of
2013 when 16 companies headquartered in Texas
Although the bump in IPOs that began in the
second half of 2013 is not attributable to one
particular industry, pharmaceutical companies
have led the way the last couple of years in the
U.S. According to Mergermarket, in 2012 only
seven pharmaceutical companies priced IPOs.
That number jumped to 22 in 2013 and, in the
first half of 2014, 28 pharmaceutical companies
have already priced IPOs. Other industries that
have seen an uptick include computer software,
which represented 16 IPOs in 2012, 19 in 2013
and 15 in the first half of 2014, and financial
services, which had 12, 19 and 15 during the same
periods, respectively. >
© 2014 The Texas Lawbook 1
In Texas it is no surprise that energy firms
continue to lead the way.
There were eight energy IPOs in Texas in 2012,
nine in 2013 and already five in the first half of
2014. No other industry accounted for more than
two IPOs in Texas during either 2012 or 2013,
and only financial services, with three, has
generated more than two IPOs in the first half
The difference may be that the resurgence in
IPOs in Texas is spread more broadly across
multiple industries. In 2012 and 2013, energy
company IPOs represented approximately 47%
and 43%, respectively, of all IPOs priced in Texas.
In the first half of 2014, although energy still had
the largest share of IPOs, only 31% of the IPOs
priced were by energy companies.
Despite the fact that energy companies
represented a reduced percentage of the total
number of IPOs in the first half of 2014, the size
of the energy industry IPOs still generally tends
to be much larger than those of companies in
Leading the way in the first half of 2014 in Texas
were Parsley Energy, which raised $925 million,
Memorial Resource Development Corp., which
raised more than $800 million, and EP Energy,
which raised over $700 million.
By contrast, companies such as ZS Pharma,
which is a pharmaceuticals company,
and Zoe’s Kitchen, a restaurant company,
raised $107 million and $87 million, respectively.
The largest IPO in Texas in the first half of 2014
was completed by Santander Consumer USA
Holdings, a consumer finance company that
raised $1.8 billion.
If the IPO market is truly back and the
improvement is spread across multiple industries,
then what is driving this growth? Is it just the IPO
market catching up with the improving general
Is it the passing of the Jumpstart Our Business
Startups Act (JOBS Act), which relaxed the
registration requirements for “emerging growth
companies”? Is it continued low interest rates
that are offering investors few options to realize
returns in other segments of the market?
The truth is that it is probably some combination
of all of these factors and more. One thing that
seems to be driving activity in Texas is pent up
demand from private equity firms that have
held investments longer than usual. >
SERVING BUSINESS LAWYERS IN TEXAS
© 2014 The Texas Lawbook 2
Two such examples are Michaels Holdings and La
Quinta Holdings. Michaels, which owns Michaels
Stores, was acquired by private equity firms Bain
Capital and Blackstone in 2006. La Quinta was
also acquired by Blackstone in 2006.
Although there is no hard and fast rule regarding
how long private equity companies expect to hold
their investments, eight years is clearly longer
than the typical hold period you would expect for
firms like Bain and Blackstone.
It remains to be seen whether the pace of IPOs
from the first half of 2014 can continue into
the second half of the year or whether we’ll see
a mid-year shift like we saw in 2013. However,
the overall strength in the capital markets and
the broader economy appear to position the IPO
market for continued success.
One thing many experts are pointing to as a
driver for IPOs in the second half of the year,
is the expected debut of Chinese online retailer
Alibaba. Alibaba has been hotly anticipated and,
if it raises the approximately $20 billion that is
currently expected, it would represent the largest
IPO ever. Building on the momentum from the
first half of the year, a successful Alibaba IPO
would almost certainly mean a strong 2014 for
the IPO market.
However, as we’ve seen before, the IPO market
can be fickle. Any speed bumps in the domestic
economy or escalation in international conflicts
like those ongoing in Israel, Ukraine and Iraq,
can change the landscape quickly.
Bill Howell is a corporate and securities law
partner in the Dallas office of Baker Botts.
His practice focuses on capital markets and
mergers and acquisitions. His full bio can be
read at www.bakerbotts.com/william-d-howell.
Please visit www.texaslawbook.net for more articles
on business law in Texas.
SERVING BUSINESS LAWYERS IN TEXAS
© 2014 The Texas Lawbook 3