Mountain View, CA (February 24, 2016) – Overall initial public offerings (IPOs) activity for technology and life sciences companies declined in 2015, with the number of deals down sequentially in each of the third and fourth quarters of 2015 after reaching a 2015 peak in the second quarter of 2015. These and other findings are noted in Fenwick & West’s latest IPO report, released today.
The report, Key Metrics for Recent Technology and Life Sciences Initial Public Offerings, analyzed 94 technology and life sciences IPOs that were completed in the U.S. in 2015. It is authored by Fenwick partners Jeffrey Vetter and Daniel J. Winnike.
“Following a slow start in the first quarter of 2015, life sciences and technology IPOs resumed a rapid pace in the second quarter before significantly trailing off in the second half of the year,” Vetter said. Vetter also noted that while life sciences and technology companies experienced similar trends, there are some significant differences, specifically in deal size, insider participation and pricing variability.
Insights found in the Fenwick IPO survey include:
Reduced Level of Overall IPO Activity
A total of 94 technology and life sciences IPOs were completed in 2015, compared with 140 in the recent banner year of 2014.
Technology and Life Sciences IPOs Both Decline, But Differ in Deal Size
There were 26 life sciences IPOs completed in the second half of 2015, compared to 37 in the first half. Technology IPOs declined to a total of 13 in the second half of 2015 from 18 in the first half.
The number of domestic life sciences IPOs in the second half of 2015 (20) was at the lowest level of any half-year period since the first half of 2013, and the number of technology IPOs (13) in the second half of 2015 was the lowest in any half-year period since the beginning of 2012.
“This reduced level of overall IPO activity preceded turbulence in worldwide equity markets in January 2016, a month in which no technology or life sciences IPOs were completed in the U.S.,” said Winnike.
While the number of life sciences IPOs declined in the second half of 2015, the size of the deals increased – approximately 50% of second-half life sciences deals raised over $100 million, compared with approximately 32% of the first-half deals.
Of the second-half life sciences IPO companies, 85% saw their stock trade up in the first day of trading, compared to approximately 68% of first-half life sciences IPO companies whose stock traded up in the first day of trading.
In terms of deal size for 2015, 32% of life sciences IPOs raised over $100 million in their IPOs, while 61% of the technology offerings exceeded that threshold. The largest technology offering was Fitbit, which raised $732 million, and the largest life sciences offering was Bermuda-based Axovant Sciences for $315 million.
Importance of Insider Participation in Life Sciences IPOs
As was the case in 2014, participation by insiders – existing investors who buy additional shares in the IPO – was an important feature of life sciences IPOs. In 2015, 73% (first half of 2015) and 62% (second half) of life science companies reported insider participation, compared to only 28% (first half of 2015) and 31% (second half) for technology IPOs.
While the number of life sciences offerings that reflected insider participation decreased in the second half of 2015, a greater percentage of the second half deals saw the insiders subscribe for 50% or more of the offering than was the case in the first half. This could reflect a need for “anchor” investors to market these offerings, which seems to be continuing into early 2016.
Tough Pricing Environment for Technology IPOs
The decline in the number of technology IPOs in the second half of 2015 was accompanied by a tougher pricing environment. Approximately 38% of second-half technology IPOs priced below the bottom of their red herring range, compared with 17% pricing below the range in the first half. Of the life sciences IPOs, 41% for first-half IPOs and 42% for the second-half priced below their red herring range.
Further reflecting this less receptive environment, approximately 38% of second-half technology IPOs traded down in the first day of trading, compared with approximately 17% of first-half technology IPOs.
Increase in Down-Round IPOs, Make-Whole Provisions
There was also an increasing number of IPOs completed at a price lower than the per share price of the issuer’s last financing round, with the number of these “down-round IPOs” increasing in the second half. In many of these instances, the late round investors either had an adjustment to the conversion ratio of their preferred stock or had additional shares issued to them to compensate for the lower priced offering.
With the recent declines in valuations of publicly-traded companies, we might expect to see further use of “make-whole” provisions for IPOs. For a deeper look at the effect that the terms of late stage financings had on 41 technology IPOs in the past two years, see the Fenwick & West publication The Effect of Companies’ Late Stage Venture Financings on Their IPOs 2014 - 2015.
Cross-Border IPOs Continue Growth
Companies with headquarters outside the U.S. accounted for 26% of the total technology and life sciences IPOs in 2015, compared to 24% in 2014.
To see the full survey results, please visit fenwick.com/iposurvey.
About Fenwick & West
Fenwick & West provides comprehensive legal services to ground-breaking technology and life sciences companies – at every stage of their lifecycle – and the investors that partner with them. We craft innovative, cost-effective and practical solutions on issues ranging from venture capital, public offerings, joint ventures, M&A and strategic relationships, to intellectual property, litigation and dispute resolution, taxation, antitrust, and employment and labor law. For more than four decades, Fenwick has helped some of the world's most recognized companies become and remain market leaders. For information about a career at Fenwick visit us at fenwick.com/careers.