Small companies seeking funding from the capital markets could catch a break in 2013.
Private equity-backed companies are expected to dominate the IPO market in 2013, according to a December survey of 50 transaction attorneys published yesterday by KCSA Strategic Communications. Sixty-eight percent of those surveyed think that the number of private equity backed IPOs will be greater than in 2012, which saw the highest number of private equity-backed offerings since 2007.
This could be good news for small companies, who have increasingly turned to the private equity market for funding, amid ongoing softness in bank lending.
According to the survey, 35 percent of respondents believe that the IPO market will be stronger in the coming year than in 2012. The remaining respondents think the IPO market in 2013 will be relatively flat when compared with 2012. The attorneys polled worked at firms that advised on 87 percent of the initial public offerings listed on major U.S. exchanges during 2012.
If the IPO market opens up through an onslaught of privately equity-backed companies going public, it bodes well for other small businesses seeking funding since private equity firms will have more available cash to invest in new companies. "All of this feeds on itself," says Jeff Corbin, chief executive of KCSA.
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There's no guarantee that hopes for a brighter 2013 will pan out. Lawmakers are in the midst of making a last-ditch effort to avoid the automatic tax hikes and spending cuts set to take effect Jan. 1, and questions about the strength of the U.S. economy and the Eurozone continue to fester. What's more, consumer confidence tumbled in December. Taken together, there's a "nervous optimism" about what the capital markets will be like in the U.S. in 2013, Corbin says.
Nonetheless, the attorneys surveyed feel the IPO market could get an additional boost this coming year as a result of The Jumpstart Our Business Startups Act (JOBS Act), a 2012 law designed to bolster funding of U.S. small businesses by easing various securities regulations.
The attorneys surveyed felt the JOBS Act has encouraged small companies to pursue potential IPOs, with 94 percent of respondents citing an increase in the number of confidential filings as a result of the Act. While there might only be 60 to 70 deals on the public docket now, many more small businesses could make their filings public in 2013 should conditions be right, Corbin says.
"Everybody’s been waiting for the capital markets to open up. Maybe this year will be the year," Corbin says.