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2014 H1: Tech IPO Review

Shriram Bhashyam | August 25, 2014

Over the past few years, the US IPO market has enjoyed success not seen since before the dot com crash. The tech law firm Fenwick & West recently released some data on IPOs for the first half of 2014. In this post, we highlight some interesting data points and posit some implications. Based on headline numbers, the IPO market in 2014 continues to be robust. In the first half of the year, 33 tech IPOs were completed. By comparison, 22 tech IPOs were completed in the second half of 2013. However, a deeper dive paints a less rosy picture.

1. It was tougher to raise larger amounts in H1 2014.
The aggregate amount raised per company via IPO trended downwards. In the first half of the year, companies raised more than $125 million in 36.3% of tech IPOs. Whereas in H2 2013, tech companies raised more than $125 million in 50.1% of IPOs.

(Source: Fenwick & West LLP)

2. The day one pop was more muted in H1 2014.

The pop, or the amount by which the price of the new IPO ticks up on the first day of trading, is an indicator of its success. It shows pent up demand by retail investors who couldn't get IPO access and a willingness of IPO investors to hold on to the position.  The median pop in in H1 2014 was $1.50 versus $3.76 for H2 2013.

(Source: Fenwick & West LLP)

3. Fewer IPOs priced above the red herring range.
In the first half of the year, 30.3% of tech IPOs priced above the range expected by underwriters. In H2 2013, 40.9% of tech IPOs priced above the expected range. However, it should be noted that fewer deals priced below the expected range in the first half of this year than in the second half of last year (13.2% versus 22.7%), so maybe the bankers just had a better pulse on the market in H1 2014.

(Source: Fenwick & West LLP)

4. The expiration of the lock-up has a significant downward impact on price.
The lock-up is a tool that prevents a shareholder from selling her shares for a defined period of time, typically 180 days, following the filing of the IPO registration (known as a S-1).  It's required by the IPO underwriters and the purpose is to facilitate demand for the IPO (by limiting secondary supply) and to ensure an orderly market for the shares immediately following the IPO. When the lock-up expires, additional supply hits the market.  As you can see below, in H1 2014, tech stocks traded down an average of 16% in the two weeks following lock-up expiration. For H2 2013, this number was 21%.

(Source: Fenwick & West LLP)

The source of all charts and data in this post is Fenwick & West's Key Metrics for Recent Technology and Life Sciences Initial Public Offerings H1 2014, available here.

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