Originally published June 25, 2014

Following four consecutive monthly increases in the number of IPOs, May activity slowed as poor aftermarket performance tempered investor appetite for new offerings. Still, the month ended with 18 IPOs—just one behind the average of 19 IPOs over the preceding twelve months.

May's tally brings the count for the first five months of 2014 to 102 IPOs—double the 51 IPOs in the first five months of 2013 and the strongest pace for any five-month period since 2000.

Gross proceeds of $4.10 billion in May bring the total for the first five months of 2014 to $20.77 billion—57% above the $13.21 billion raised by IPOs in the first five months of 2013.

The percentage of IPOs by emerging growth companies (EGCs) continues its climb, reaching 89% of IPOs in the first five months of 2014 compared to 82% in all of 2013 and 76% in the portion of 2012 that followed enactment of the JOBS Act.

With six venture capital–backed US issuer IPOs in May, the total of 51 over the first five months of 2014 is more than double the tally of 20 VC-backed US issuer IPOs in the first five months of 2013. The three private equity–backed US issuer IPOs in May bring the five-month total for 2014 to 18—two above the total over the first five months of 2013 and only one shy of the 19 in the first five months of 2012.

Overall, broadly-defined technology and life sciences companies have accounted for 75% of the year's IPOs, up from 59% over the prior three-year period and representing the highest annual percentage since the end of the dot-com bubble in 2000.

May produced five IPOs by life sciences companies, bringing the year-to-date total to 44 IPOs—only six shy of the 50 for full-year 2013. The IPO market, however, remains less receptive to life sciences companies than in 2013 and the first quarter of 2014. All five life sciences IPOs in May priced well below the original price range and the best first-day performance was a gain of just three cents—one was flat and the remaining three ended their first day of trading down an average of 9%. As IPO valuations are squeezed for life sciences companies, some may opt to be acquired.

The $91.4 million median offering size for all IPOs in the first five months of 2014 is 15% lower than the median offering size of $107.4 million in full-year 2013 and represents the lowest yearly figure since the $89.3 million median offering size in 2004. Drawn down by the $55.0 million median offering size for life sciences IPOs in 2014, the median deal size for VC-backed companies in the first five months of 2014 was $73.5 million—the lowest level since the $72.0 million median in 2006. The median deal size for EGCs in the first five months was $84.0 million compared to $704.0 million for other IPO companies.

Life sciences IPO companies typically are unprofitable and have minimal revenue. Reflecting the increasing market share of life sciences companies (14% of all US IPOs in 2012, 28% in 2013 and 43% in 2014), the overall percentage of profitable IPO companies declined from 55% in 2012 to 43% in 2013 and to 31% in the first five months of 2014, and the median annual revenue for all IPO companies fell from $133.6 million in 2012 to $89.9 million in 2013 and to $71.6 million in the first five months of 2014.

The average IPO company in 2014 ended its first day of trading with a 16% gain—below the average first-day gain of 21% for IPOs in all of 2013 but still the second highest annual average gain since 2000. Year-to-date, 25% of IPOs were "broken" (closing below the offering price on the first day)—above the 22% of broken IPOs in 2013 but only a single percentage point above the figure for the ten-year period preceding 2014.

The average 2014 IPO company ended the month only 10% above its offering price. At this time last year, the average 2013 IPO company had gained 25% from its offering price. Year-to-date aftermarket performance is even worse when measured from first-day closing prices. While the average IPO company in the first five months of 2013 gained 7% from first-day close through the end of May, the average IPO in the first five months of 2014 has declined 4% from its first-day close through the end of May. At May month-end, 38% of all 2014 IPOs were trading below their offering price and 54% of all 2014 IPOs were trading below their first-day closing price.

IPO activity in May consisted of offerings by the following companies listed in the order they came to market:

  • Aldeyra Therapeutics, a biotechnology company focused primarily on the development of products to treat immune-mediated, inflammatory, orphan and other diseases, priced a downwardly sized IPO below the range and declined 10% on its first day of trading.
  • Papa Murphy's Holdings, a high-growth franchisor and operator of the largest Take 'N' Bake pizza chain in the United States, priced at the low end of the range and gained less than 1% in first-day trading.
  • SCYNEXIS, a pharmaceutical company committed to the discovery, development and commercialization of novel anti-infectives to address significant unmet therapeutic needs, priced at the expected price and ended its first day of trading 10% below its offering price.
  • Alder BioPharmaceuticals, a clinical-stage biopharmaceutical company that discovers, develops and seeks to commercialize therapeutic antibodies with the potential to meaningfully transform current treatment paradigms, priced an IPO upsized by 12% below the range and edged up three cents in first-day trading.
  • Cheetah Mobile, a provider of a diversified suite of mission critical applications designed to optimize Internet and mobile system performance and provide real-time protection against known and unknown security threats, priced within the range and produced a first-day gain of less than 1%.
  • Dorian LPG, an international LPG shipping company primarily focused on owning and operating very large gas carriers, priced at the midpoint of the range and ended its first trading day 2% below its offering price.
  • K2M Group Holdings, a global medical device company focused on designing, developing and commercializing innovative and proprietary complex spine technologies and techniques, priced below the range and was flat in first-day trading.
  • Tuniu, a leading online leisure travel company in China offering a large selection of packaged tours, including organized tours and self-guided tours, as well as travel-related services for leisure travelers, priced at the low end of the range and produced a first-day gain of 12%.
  • Zendesk, a software development company that provides a software-as-a-service customer service platform, priced at the midpoint of the range and jumped 49% from its offering price in first-day trading.
  • Jumei International, an online retailer of beauty products, priced an IPO upsized by 17% above the range and ended its first day of trading with a 10% gain.
  • TrueCar, which operates an online platform allowing consumers to get guaranteed pricing on new cars, priced below the range and produced a first-day gain of 12%.
  • JD.com, the largest online direct sales company in China, priced above the range and ended its first trading day 10% above its offering price.
  • SunEdison Semiconductor, a global leader in the development, manufacture and sale of silicon wafers to the semiconductor industry, priced at the low end of the range and gained 15% on its first day of trading.
  • Agile Therapeutics, a women's health specialty pharmaceutical company focused on the development and commercialization of new prescription contraceptive products, priced below the range and declined 8% on its first trading day.
  • Heritage Insurance Holdings, a property and casualty insurance holding company providing personal residential insurance for single-family homeowners and condominium owners in Florida, priced below the range and produced a first-day gain of 5%.
  • Parsley Energy, an independent oil and natural gas company focused on the acquisition, development and exploitation of unconventional oil and natural gas reserves in the Permian Basin, priced an IPO upsized by 14% above the range and ended its first day of trading with a 20% gain.
  • Superior Drilling Products, a remanufacturer of polycrystalline diamond compact drill bits, and a designer and manufacturer of new drill bit and horizontal drill string enhancement tools for the oil, natural gas and mining services industry, priced an IPO upsized by 35% below the range and ended its first day of trading with gain of 12%.
  • Resonant, a development-stage company creating innovative filter designs for radio frequency front-ends for the mobile device industry, priced an IPO upsized by 20% at the expected price and produced a first-gain day of 52%.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.