7/30/2019 2012 IPO Report

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CORPORATE2012 IPO Report

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US Market Review and Outlook

Law Firm and Underwriter Rankings

Selected WilmerHale Public Offerings

Regional Market Review and Outlook

California

Mid-Atlantic

New England

Tri-State

JOBS Act Creates IPO On-Ramp to Facilitate IPOs

Hot Topics in SEC Review

Individual Reporting Obligations Under the Hart-Scott-Rodino Act

Initial Public Offerings: A Practical Guide to Going Public

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Table of Contents

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US Market Review and Outlook US Market Review and Outl

Review

The US IPO market produced 110

IPOs in 2011a 23% decline rom the

142 IPOs in 2010. Through the rst

seven months o 2011, the number o

oerings was well above the number in

the comparable period o the prior year,

but then the IPO market stalled due to

European economic concerns. Ater

producing a mere our IPOs rom August

to October, the market rebounded nicely

to end the year with strong momentum,

which has carried over into 2012.

Gross proceeds dropped 14%, to

$31.1 billion in 2011 rom $36.3 billion

in 2010. The percentage decline in gross

proceeds was less signicant than the

reduction in deal fow, due to the presence

o six billion-dollar oerings in 2011.

The sole oering o this magnitude in

2010 was the $20.1 billion oering by

General Motorsthe largest IPO in US

historywithout which gross proceeds

in 2010 would have lagged behind the

2011 total by a wide margin.

The largest IPO o 2011 came rom

hospital operator HCA Holdings ($3.79

billion). Yandex, Russias leading online

search engine, produced the years

largest tech IPO ($1.435 billion).

Median IPO size increased almost

50%, rom $100.0 million in 2010 to

$147.8 mil lion in 2011. The 2011 gure

represented a resumption o the upward

trend in median deal size since 2004.

In 2011, there were two moonshots

(IPOs that double in price on their

opening day)Chinese Internet

company Qihoo 360 Technology soared

134% in rst-day trading, and online

proessional network company LinkedIn

jumped 109%. Qihoo surrendered mosto this gain in the atermarket, ending

the year up only 8%, while LinkedIn

also retrenched, to end 2011 up 40%.

The average rst-day gain or all IPOs

in 2011 was 12%, and 27% o the years

oerings were broken IPOs (IPOs whose

stock closes below the oering price on

their opening day). These results compare

avorably to 2010, when the average rst-

day gain or all IPOs was 10%, and 32%

o the years oerings were broken IPOs.

Atermarket perormance, however, was

much poorer in 2011 than in 2010, as

capital markets were bueted in the thirdquarter o the year. The average 2011 IPO

lost 11% rom its oering price by the end

o the year, with only 46% o the years

IPOs trading at or above their oering

price at year-end. By contrast, the average

2010 IPO appreciated 28% by the end o

the year, and 68% o the years IPOs were

trading at or above their oering price

at year-end. Perormance metrics rom

rst-day close to year-end painted an even

starker picture, with the average IPO o

2011 declining 20% on this measure.

IPO companies were less protable in

2011 than in recent years. The percentage

o protable companies going publicdropped rom 59% in 2010 to 55% in

2011the lowest percentage since the

tail o the dot-com boom in 2001. The

median annual revenue o IPO companies

increased slightly, rom $100.8 million

in 2010 to $105.2 million in 2011. These

results illustrate the continuing biurcation

o the IPO market, which seeks larger

and more protable companies, while

also embracing emerging technology

companies with strong growth and a

demonstrated path toward protability.

Individual components o the IPO

market ared as ollows in 2011:

With 42 oerings, venture capitalbacked

IPOs represented 38% o the market in

2011, compared to 43 deals and a 30%

market share in 2010. Most o these

venture capitalbacked IPOs were by

technology or lie sciences companies.

The average 2011 VCbacked IPO lost 6%

rom its oering price through year-end.

Private equitybacked IPOs grabbed

26% o the market in 2011, with 29

oerings, compared to 39 oerings or

a 27% market share in 2010. The three

largest IPOs o 2011 were the largest

private equitybacked oerings in US

history: HCA Holdings ($3.79 billion),

Kinder Morgan ($2.86 billion) andNielsen Holdings ($1.64 billion).

Deal fow in the technology sector

remained strong in 2011. Tech-related

companies produced 54% o the years

IPOs, up slightly rom 53% in 2010.

Tech IPOs, however, ared worse in

the atermarket than IPOs in other

sectors, with an average loss through

year-end o 16%pulled down by a

number o very poorly perorming

Chinese tech IPOscompared to the

average loss o 5% or non-tech IPOs.

Foreign issuers accounted or 25% o the

market in 2011, down rom 39% in 2010

and the lowest level since 2006. China,

which produced a loty 40 IPOs in 2010,

sent only 13 IPOs to the US in 2011.

In 2011, companies based in the western

United States (west o the Mississippi

River) completed 55 IPOsa gure

buoyed by 15 IPOs rom Texas and ve

rom Oklahoma, 80% o which were

energy-related. Eastern USbased issuers

accounted or 28 IPOs, and oreign issuers

accounted or the remaining 27 IPOs.

OutlOOk

Although we remain undamentally

optimistic about the long-term

prospects or the IPO market, economic

uncertainty lies close to the surace.

IPO market activity in the coming

year will dep end on a number o

actors, including the ollowing:

Economic Conditions: Economic growth

is a key determinant o strength in

the capital markets. Ater a recession

that was longer and more severe

than almost anyone anticipated, theeconomy began to recover by mid-

2009. Since then, economic recovery

has been accompanied by mixed

signals, and the timing and extent o

economic growth remains uncertain.

Capital Market Conditions: Stable and

robust capital markets are a leading

indicator o IPO activity. Ater two strong

years, which saw the Nasdaq surge 44%

in 2009 and tack on another 17% in 2010

and the Dow increase 19% in 2009 and

11% in 2010, both indices gyrated in 2011.

Recovering rom a 15% sell-o in lat

and early August, the Dow ended 20

with a 6% gain or the year. The Nassuered a steeper mid-summer all a

was not able to recover as quickly as

Dow, ending the year with a 2% loss

In the rst quarter o 2012, the Nasd

jumped 19% and the Dow increased

Geopolitical Factors: Several geopolit

actors could adversely aect the IPO

market. Debt deault by troubled Eu

member nationsalthough staved

o, to date, by bailouts and austerity

measurescould reverberate global

the specter o higher oil prices could

uS iPOs 1996 o 2011

U S i ss ue rs F or ei gn i ss ue rs

uS iPO Doar vom 1996 o 2011

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Source:SEC flings

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Mda Aa R o iPO Compas 1998 o 2011

$ millions

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Prca o Profab iPO Compas 1998 o 2011

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US Market Review and Outlook US Market Review and Outl

heavily on the world economy; and there

is growing nervousness that the Chinese

economy is a bubble waiting to burst.

Regulatory Environment: The corporate

governance reorms resulting rom

the adoption o the Sarbanes-Oxley

Act in 2002 and the Dodd-Frank

Act in 2010 have helped improve

accountability to stockholders, board

oversight o management, board

member qualications and investor

condence, but have also increased

the compliance cost and potential

liability o being public. The new and

enhanced governance requirements do

not pose a major impediment to going

public or most companies, and many

o these requirementssuch as robust

controlsare needed in a growingenterprise, whether or not it ever pursues

an IPO. For those IPO candidates

that have been deterred rom going

public by the more rigorous corporate

governance environment, however, the

new JOBS Act should oer some relie.

Impact o JOBS Act: Enacted in early April

2012, the JOBS Act is intended to improve

access to the public capital markets or

startup companies. The JOBS Act provides

emerging growth companies (EGCs)

up to ve years ollowing their IPO to

come into ull compliance with certain

disclosure and accounting requirements.

An EGC is any company that had annual

revenues o less than $1 billion (indexed

or infation) during its most recently

completed scal year, other than a

company that completed its IPO on or

beore December 8, 2011. Approximately

90% o all IPO companies over the past

ve years would have qualied as EGCs.

The extent to which the JOBS Act prompts

EGCs that otherwise would have stayed

private to go public remains to be seen.

Venture Capital Pipeline: Venture

capitalists depend on IPOsalong with

company salesto provide liquidity

to their investors. Encouraged by the

receptivity o the IPO market to venture

capitalbacked companies, the number

o VC-backed companies entering IPO

registration, or resuscitating dormant

lings, continues to increase. Longer term,

the pool o IPO candidates will be aected

by trends in venture capital investing,

including the timeline rom initial

unding to IPO. According to Dow Jones

VentureOne, the median time rom initial

equity nancing to IPO ell to 6.5 years in2011 rom 8.1 years in 2010, refecting an

infux o younger and smaller VC-backed

companies into the IPO market in 2011.

Private Equity Impact: Private equity

investors also seek to divest portolio

companies or achieve liquidity through

IPOs. PE-backed companies are usually

larger and more seasoned than VC-backed

companies or other startups pursuing

IPOs, and thus can be strong candidates

in a demanding IPO market. Private

equitybacked IPOs fourished in 2011

and can be expected to continue to enter

the IPO market as conditions permit.

Market momentum has continued into

2012, with the rst quarter producing

the largest number o rst-quarter

IPOs since 2007. Year-to-date, the

obvious highlight is Facebooks $16.0

billion IPOthe largest tech IPO in

history. Other prominent IPOs in early

2012 included Splunk ($229.5 million),

Tumi Holdings ($338.0 million)

and Yelp ($107.3 million).