With more than 200 deals, 2013 was a blockbuster year for domestic initial public offerings—the best on record since the turn of the millennium. And some of the biggest hits, like Twitter’s hotly anticipated shares, came out of California. Issuers headquartered in the Golden State accounted for nearly 20 percent of the total IPOs, with 44 going public.
Latham & Watkins and Wilson Sonsini Goodrich & Rosati shared the distinction of bringing the most California issuers to market, advising eight apiece, according to a Recorder study of geographic IPO data supplied by Renaissance Capital. Wilson Sonsini, however, which won the coveted Twitter advisory role, handily outpaced its peers in total amount raised by clients issuing shares.
Attorneys say the strength of the equity capital markets is likely to continue into the new year. If their own pipelines are any indication, many said, the first quarter is going to be busy.
The first IPO of 2014 came Friday from Maryland-based biotech company GlycoMimetics, which soared in its debut, pricing an upsized offering after it postponed its plans in November. Many similarly situated biotechs put their IPOs on hold during the last few weeks of the fourth quarter.
An end-of-year slowdown reverberated across sectors, but some attorneys said this came as no surprise. They attributed it to a few factors, investor fatigue and gains-preservation among them. After a strong year, many institutional investors “don’t want to put their bonuses at risk,” said Patrick Pohlen, a Silicon Valley–based partner at Latham & Watkins.
But the GlycoMimetrics offering—in addition to a number of biotechs waiting in the wings—shows continuing confidence in the biotech space, a sector where IPOs have sometimes struggled.
Cooley partner Charles Kim noted that several of the companies that put the brakes on their offerings have now priced, and the firm has helped seven other health care companies file publicly in recent weeks. San Diego’s Receptos Inc., which went public in May, is trading at more than double its IPO price and is planning to close a secondary offering next week.
Several factors paved the way for life sciences companies to have their biggest year in recent memory. During a sustained bull market, investors looking for significant returns might become a bit more receptive to riskier bets, like those offered by biotechs, observed Latham partner Alan Mendelson. Like other companies, life sciences firms were further empowered by the flexibility brought by the JOBS Act, which permits so-called emerging growth companies to file confidentially with the SEC and test the waters with early investor meetings.
“All in all it was a really positive year,” Mendelson said. “It was so positive I have to admit to you I got a little twitchy toward the end of the year.” As counsel, it’s important to tease out the companies that are really ready to embark on a public offering from those simply rushing out to take advantage of the open window.
“Investor demand will be there for good companies,” Cooley’s Kim said.
But with companies able to weather—and wait out—a lull, the market for biotech offerings seems to have matured a bit. Many attorneys in the life sciences space are expecting a flurry of activity on the heels of the J.P. Morgan Healthcare Conference, which begins Jan. 13 in San Francisco.
The tech industry also contributed to California’s busy launch pad. Though 2014 isn’t expected to feature the kind of shadow-casting offering that Facebook and Twitter brought to 2012 and 2013, respectively, attorneys said the pipeline of exciting, “real” companies remains strong.
The strong IPO market has inevitably drawn comparisons to 2000, and suggestions that the boom could signal a bubble poised to burst. But Silicon Valley attorneys reached by The Recorder said that although the past year was record-busting, it looks less like 2000 than one might be inclined to think. For one, there were 406 initial public offerings that year, nearly double last year’s haul. For another, the fever in the air more than a decade ago meant the companies getting to market were weaker, puffed up by hype, not financial fundamentals.
“In 2000 there were companies going public that had no business being public companies,” said Richard Kline, a partner at Goodwin Procter. “They might have had ‘clicks and eyeballs,’ but couldn’t convert on their revenue.” Today’s companies, by contrast, are profitable or have clear paths to it, he said.
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