The IPO business: an anemic Q1, a cloudy Q2

Traders work on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters
Traders work on the floor of the New York Stock Exchange.

After an historic 2014, the first quarter of IPO activity has seen a notable dropoff.

Thirty-four IPOs raised $5.4 billion, according to a report out today from Renaissance Capital. That's half the number of IPOs and roughly half the dollar amount raised in Q1 2014, making it the least active quarter by IPO count since Q1 2013.

The good news: Biotech IPOs continued strong, accounting for roughly half of all the deals.

The bad news: Technology and Energy saw a drop off.

What happened? The drop in energy IPOs is no surprise, but tech IPOs dropped off partly because so much private funding was available that valued the companies at high levels. That left little incentive for many companies to go public.

In Tech, there's too much (private) money chasing too few opportunities. But the public IPO market has a certain amount of discipline, and they are usually reluctant to bid things up to the moon.

This has led to a problem: recent high-profile tech deals like Box, HortonWorks and New Relic went public at levels that were below their most recent private funding rounds.

Renaissance speculates—rightly so—that this may have caused some tech firms with significant venture funding behind them to delay their IPOs.

What about private equity (PE) deals? There were fewer of them as well: only five, the least active quarter for PE since 2009. The speculation is that the market has cycled through the big deals of 2005-2008, and is now pausing.

Here's what's strange: what did go public did fairly well. The average IPO traded up 15 percent during the first quarter. That may be because the market has been very disciplined, not allowing pricing to get into the stratosphere.

Why do I say that? Because a third of IPOs priced below the range. That's good news for buyers!

And IPO prices have held up fairly well longer-term. One good gauge is the Renaissance Capital IPO ETF (IPO), a basket of roughly 60 of the most recent IPOs, up seven percent this quarter, easily outperforming the S&P 500. The group includes Twitter , the largest holding, and Alibaba, the second largest holding.

GoDaddy, the world's largest domain registrar, will be pricing tonight and will trade Wednesday on the NYSE. Even though this is not a fast-growth tech company, it does have significant cash flow and will be a good test of investor appetite.

The outlook for the second quarter? It seems a bit cloudy. Energy IPOs will remain fairly small (except for MLPs). Tech is the big issue: there has to be some reconciliation between the easy money in the private market and the more disciplined crowd in the IPO market that wants a better deal.

The calendar is a bit slow because we are going into Easter, but Transunion, the big credit bureau, just filed Tuesday. That will be a fairly large deal.

And big names like Uber, First Data, iHeartMedia, Palantir, Snapchat, Pinterest, Dropbox, Airbnb, Ferrari, and Univision are also out there, all of whom haven't filed but everyone is expecting to file. These are IPOs with BIG valuations.

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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