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US making comeback as IPO destination

After seeing its share of the global IPO pie dwindle earlier this decade, the United States has staged a comeback in the last 18 months, reclaiming its place at the top of the heap for initial public offerings.

Its position as an IPO haven is bolstered by an economy further along the path to recovery than most, and the faith investors have in its markets, seen as sophisticated and well-regulated despite the credit crisis, say exchange company executives.

So far this year, on the strength of a modest string of seven deals, the US share of global IPOs in dollar terms is 31.2%, according to Thomson Reuters data, keeping pace with its share last year and more in line with historical averages, and slightly ahead of China.

As recently as 2007, the US market share had been 12.4%, its worst performance this decade, as emerging markets surged and their stock exchanges matured.

But exchange executives cite various reasons for the rebound in US market share.

“The US capital market is still the most mature in the world, has the deepest pool of liquidity and has the broadest shareholder base,” said Scott Cutler, the head of listings at New York Stock Exchange parent NYSE Euronext Inc.

The US economy has shown resilience and markets have stabilized, creating conditions conducive to drawing IPOs.

“You're looking at the strongest markets in the world,” Robert McCooey, Nasdaq's senior vice president for new listings, said in reference to the United States and China. “These two markets are leaders in terms of innovation and growth, so companies are going to be created and grow there.”

China is the only real challenger to US IPO supremacy, but even there, the United States has built-in advantages.

“As a place to raise money, (China) is not an international marketplace - it's pretty much a market for domestic opportunities, whereas the US has been open to the rest of the world,” Cutler said.

Notable US IPOs in 2009 have included a $828 million deal by pediatrics food maker Mead Johnson Nutrition Co and a $60 million IPO by restaurant reservations system OpenTable Inc which had the best market debut in 18 months.

Though the financial crisis that erupted last year has been painful, the United States has done more to prop up the financial system and restore confidence than many other countries and will reap the rewards, one academic said.

“Europe has tremendous problems, and the US has addressed its banking problems more decisively, so growth rates long-term will be higher in the US than they will for Europe,” said Reena Aggarwal, a finance professor at Georgetown University.

Britain, France, Italy and Germany have seen no IPOs of size so far this year.

And the United States now benefits from the stronger corporate governance laws many had blamed for dissuading companies from going public here in recent years, the exchanges said, because nervous investors need assurances companies are well vetted.

“You don't want situations like a Satyam on your market,” McCooey said of the major Indian outsourcing outfit at the center of an accounting scandal earlier this year.

When a market is under-regulated, that creates a lack of liquidity, which in turn crushes valuations and makes companies more vulnerable to delisting, Cutler said.

Some see the current surge of follow-on offerings as a precursor to a more robust IPO recovery later this year.

The United States is dominant in this follow-on arena too. It accounts for 43% of the $97.7 billion raised globally in additional shares issues by public companies so far in 2009, suggesting a good head start on the way to an IPO recovery.

After three IPOs each in April and May, June looks promising, with two IPOs, by medical software company Medidata Solutions and Chinese water treatment equipment company Duoyuan Global Water, on the calendar.

That is still a slow pace by historical standards, but an improvement over the near halt in IPOs between September last year and February, when only one US deal went ahead.

“The US is still struggling but it will come out of the crisis stronger, and sooner,” Aggarwal said.

“For IPOs, you need investors, and as long as the US has deep pockets, companies will raise capital and list here.” (Reuters)