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The Health of Healthcare

The biggest story in healthcare this year has probably been the trials and tribulations of Obamacare and its accompanying website – especially now that we’ve learned the site’s price tag! Thankfully for the industry in general, it hasn’t been contagious. We’re now more than halfway through 2014 and in terms of new issuances, the healthcare sector is showing no signs of sickness.

  • As of now, the industry claims 43 priced IPOs in 2014, by far the most of any sector (technology is the runner-up, with 20), and significantly leads the backlog on a deal count basis with an impressive 28 expected deals ($2.1B), although the average deal size is only $75.0M
  • Of note, Healthcare has lagged behind other sectors in the pipeline over the last two years, with 2011 as the most recent year to approach 2014’s numbers, when there were 15 Healthcare issuers in the comparable backlog period

Let’s provide some context by talking 2014 in general.

Typically, years that begin with such robust backlog numbers are top-loaded, with most of the new issuance activity taking place within the first two quarters. For example, in 2011 and 2012, each of which entered the year with backlogs in the 80s, and more than half of those IPOs hit the market before June. By contrast, 2013 had a relatively weak January pipeline with only 28 deals pending, and thus most of its IPOs priced in the latter half of the year. With 91 IPOs already in the backlog, and a strong July, the first half of 2014 looks to set the tone for what could be another blockbuster year for IPOs, with Healthcare’s 28 deals leading the way.

A rising tide lifts all boats, sure, but why is Healthcare floating on top? One reason could be the success of the recent Healthcare IPOs that have priced in the past year. Healthcare IPOs have outperformed the average offer/1day by nearly 1% and have fared better on an off/current % change basis. In fact, over the past four years, the average offer/current for Healthcare IPOs is 57.5%, so perhaps the bandwagon is only finally attracting some well-deserved attention. However, that theory has suffered a bit in the past few weeks, as Healthcare IPOs have been under-performing of late, due to the sell-off the broader sector withstood in the spring.

Maybe the prevalence of Healthcare IPOs has a lot to owe to the JOBS Act. The April 2012 Jumpstart Our Business Startups act has made it affordable for smaller companies to go public, thanks to confidential filings and lower legal/regulatory costs, and that is likely playing a role in the volume of Healthcare IPOs that we’re seeing in 2014.

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