Black and White Program

It’s GO GO times for the Financial Markets and IPO’s in 2014

January 23rd, 2014 by John Eastman

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Looking at the financial markets, there is a sense of energy in the air regarding the year ahead. Take the markets uptrend performance in 2013 along with the IPOs (Initial Public Offerings) executed, then look at early 2014 activity (estimated over 70 filings already), and you have a recipe for another high growth year, that is if the new chairman of the Federal Reserve (FED) does not wreck it with new monetary policy changes. Lets start with The Dow Jones industrial average (DJIA). On the last day of trading in 2013, the DJIA rose over 72 points, closing at 16,576.66. The index of blue-chip stocks was up 26.5%. Nasdaq closed at 4,176.59, its composite index up 38% for the year. The S&P 500 (Standard & Poor) was up 30% for the year ending at 1,800.36.

The number of total IPOs in 2013 totaled 222, raising somewhere in the range of $55 billion dollars, reportedly the best year since 2000 according to Renaissance Capital, experts on the subject of IPO filings. The progression in recent past years has been 63 in 2009, 154 in 2010, 125 in 2011, and 128 in 2012.  According to some analytical reports, there were on average 311 IPO offerings per year from the 1980 to 2000 period. Since 2000, that average has only been 102. The major decline is noted in small firms. Its been written multiple times that the Sarbanes-Oxley Act of 2002 and its far reaching compliance was the root for the declines during these periods. The Facebook IPO 2012 didn’t help that year either with a 50% stock price fall within 3 months, multiple legal issues and claims of non-disclosure by the company and their advisors, dirtying the water for most others for the remainder of the year.

In 2013 healthcare and tech firms did well, as did energy. Typically it is young companies that turn to IPO-land as they are bootstrapping their companies and need newly raised cash to do so, as well as to enable early founders to benefit from years of sweat equity work. Frequent IPO activity makes sense with the tech sector as advances are in abundance and make their way to the marketplace easily capturing the interest of investors and the major markets. Healthcare, by some is thought of a little different, perhaps as more of a mature sector. But what drove the healthcare sector was 37 biotech offerings, and that is notable, possibly a directional indicator of more activity in 2014. I have followed biotechnology firms, with a focus on biopharmaceuticals for the past 5 years as a journalist, and have interviewed CEO’s and research scientists at the the top of their game along the way. Many are at the Phase II and II clinical trial stage of FDA approval with solutions apparent for a host of treatments for ranging from forms of Cancer, Dry AMD (Macular degeneration) and various heart disease related inflictions. A significant amount of activity in the biotech area makes sense, as it is apparent that advances in medicine are progressing rapidly, and the FDA is being more helpful with clinical response.

One of the bigger messages may be that U.S. firms and their IPO advisors felt safe in 2013 in consistently coming to the IPO market, differing from 2010 in which only 153 IPOs were filed and were sporadic. A strong stock market performance throughout the year, no additional Fiscal Cliff worries, the European debt crisis somewhat off the front page radar, a late year congressional budget deal with no further government shutdowns, all may have sent a warm welcome message to IPO firms and advisors. The overall environment in 2013 for IPOs and the market was favorable as the FED kept interest rates low, declining to make any major changes to possibly disrupt the fragile growth rate, and calls by some to tweak interest rates to increase inflation rates to inadvertently create jobs. You pretty much only get one good shot at pulling off a positive IPO, and all want safe waters and a healthy market when doing so.

Talk is already abuzz about 2014 prospects from online storage firm Dropbox, e-commerce firm Alibaba, Bloom Energy who builds fuel cells, and online payment vendor Square. Several sources have noted that already over 70 firms have plans for filing IPOs in the first quarter alone. That looks like it may quite a jump on the 222 mark of 2013.

So what happens in 2014? I think it’s Game ON particularly with the biotech offerings. It may a coincidence but the FDA has extended its hand out further to biotechs for clinical development and review, and testing. This is not to be confused with a reduction of requirements or review, but rather more of a cooperation with drug firms. Multiple biotech firms have noted that the FDA seems more accommodating than in prior years. This could lead to more products to market, indirectly leading to more IPO activity.

Some things to consider. Janet Yellen is the new FED chair replacing Ben Bernanke. Likely she won’t come in a blazing and raise interest rates or cancel bond purchases propping up the economy upon her arrival, but perhaps a policy correction is in order in the next 2 quarters, one  likely involving interest rates-inflation if the jobs picture does not improve. The GDP is finally looking a bit healthy. The markets seem stable and continuing their 2013 path. Let the bull dance.





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