2013 is turning out be a hot year for IPOs

2013 is stacking up to be a great year for initial public offerings (IPOs). Following a slow period after the economic crisis, the number of IPOs in the US could surpass 200 for the first time since 2007.

Hilton Worldwide and Twitter, two well-known companies, announced just last week to go public. “It’s hot right now,” said Tim Keating who specializes on pre-IPO investments.

While an average of 139 companies went public per year from 2003 to 2012, already 140 IPOs took place this year according to Renaissance Capital. There is more expected: Historically the end of the year is the busiest time for IPOs.

The raised amount of money in IPOs is the only indicator so far lower in 2013 ($29.9 billions) than in 2012 ($42.6 billions). But it was one company alone -Facebook’s IPO in May 2012 – that made up a huge junk ($16 billion) of the volume.

The main reasons for the increase are low volatility, a soaring stock market and the good performance of stocks following its IPO.

The Volatility Index, VIX, closed Friday evening at the 13.12, which is historically low. It ranged from 11.30 to 20.49 year to date. Add this to a well performing stock market (S&P500 is up +17.77% YTD) and you have a great environment for companies who want to cash in.

Also, the stocks are performing well after their IPOs. The FTSE Renaissance US IPO Index, which covers companies in the first two years of trading, outperformed (+46.4%) the market year to date.

“If underwriters continue underwriting with discipline, IPOs are a good investment,” Keating said.

The JOBS Act gives growing companies another incentive to go public earlier rather than later – when they might have outgrown the threshold of $1 billion in annual revenues. The bill was signed into law in April 2012 and allows small businesses to file for an IPO confidentially.

But even more important, it makes IPOs cheaper: No internal auditing is required for small companies for up to five years.

Despite the rising numbers in IPOs this year, there is a pattern that smaller tech companies are not going public, said Jay Ritter, who studies IPOs at the University of Florida. The vast majority of small young technology companies seek to be bought out by one of the tech giants.

But overall the outlook for IPOs is good. “I am expecting more IPOs next year,” said the analyst Keating.


Dominik Wurnig