In 2014, equity capital formation proliferated to levels not seen in several years – an encouraging sign that middle market growth is thriving and on a positive trajectory moving into 2015. Contributing to this surge in the middle market capital formation engine were private placements, the stock market, IPOs and the JOBS Act.
CohnReznick’s Middle Market Equity Capital Report – 2014 Analysis: Progress for Middle Market IPOs, the fourth in a series of quarterly reports, examines the metrics and propellers of IPO activity. CohnReznick analyses how these factors are converging to influence the overall middle market business sector and the impact of JOBS Act regulations on the formation of equity capital.
The report highlights that IPO activity in 2014 was the strongest since the year 2000, representing a 25% increase compared to 2013 in the number of IPOs completed by middle market companies. In 2014, middle market companies raised over $28 billion compared to nearly $31 billion in 2013. Despite the slight decrease in proceeds, the larger number of deals in 2014 is encouraging, as it indicates that companies are more willing to move forward with IPO plans at possibly younger stages of development.
According to the report, even with indicators pointing to a healthier middle market capital formation temperature, issues such as the dampening level of activity in smaller IPOs and persistent underpricing of middle market IPOs are points of concern heading into 2015.
Additional findings include:
The technology, healthcare, and life sciences industries saw a continued surge in IPOs – comprising 62% of all middle market IPOs in 2014, versus 46% in 2014 – largely due to the impact of regulations for Emerging Growth Companies under the JOBS Act.
Smaller middle market IPOs – those raising less than $50 million in proceeds – accounted for only 17% of all operating company IPOs. Just two decades ago, small IPOs accounted for 80% of all operating company IPOs.
Equity crowdfunding is transforming how privately held companies raise capital and interact with investors. Companies are realizing they can get broader distribution, better efficiency, and ultimately cheaper capital by advertising and marketing their deals.
