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IPO and M&A: First Quarter 2015 Review and Expectations Going Forward

     

The first quarter was a bit rocky for the stock market as a whole, with quite a decrease in overall Initial IPO activity, but that is not necessarily an anomaly for this time of year. Despite the general volatility, the technology sector is continuing to dominate the markets and consequently the headlines. The private markets have witnessed, and will likely continue to see, tech startups receiving astonishing venture capital funding at increasingly high valuations.

 

The substantial private cash infusions clearly diminish the need for IPO capital, which although beneficial, can obviously open the door to a host of other issues (regulatory requirements and disclosures can prove time consuming and costly). In addition, of the somewhat small number of IPOs that did occur during the first quarter, quite a few involved small biotech firms. According to some market analysts, that would primarily constitute activity in the healthcare sector, but we tend to think of it as a part of the technology space as well, so it bodes well for the industry.

 

As for mergers and acquisitions (M&A), this was the highest first-quarter we have seen globally since the first-quarter of 2007, due in large part, to bigger deals involving bigger companies. The bustle of activity is attributable to several factors, including companies’ cash infusions (certainly true in the tech sector), cheap debt, and increasing confidence (both publicly and privately fortunately). Notably, software and tech-enabled services was the largest sector with respect to total number of M&A transactions and deal value.

 

And, there is a positive outlook for M&A, not to mention the overall economy, throughout the rest of 2015. In fact, technology is expected to lead M&A activity the rest of the year, with biotechnology following not too far behind. In particular, it is the demand for cloud services and the increasing emphasis on security that are contributing to this uptick in the tech industry. Plus, those venture capital-backed, huge cash infusions we cannot help but mention again are certainly facilitating the increase in activity. Of course, this may contribute to the continuation of a relatively quiet IPO market, but that is not necessarily negative.

 

Based on the majority of assessments, 2015 is shaping up to be a busy year, and the health of the economy will continue on its path of improvement.

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