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San Diego Sees One IPO in First Half of 2018

Increasing geopolitical uncertainty leading to volatile public markets likely kept some companies from pursuing an initial public offering in the first half of 2018.

One company in the San Diego region went public in that time: Escondido-based One Stop Systems, which makes ultra-dense, high-performance computing systems, debuted on the Nasdaq exchange in February. Its IPO resulted in proceeds of $19 million.

In the first half of 2017, two San Diego companies entered the public market. Tocagen Inc. and AnaptysBio Inc., both biotechnology companies, saw proceeds of $97.8 million and $75 million, respectively. Proceeds for the year, which saw three local IPOs with the debut of Odonate Therapeutics Inc. in the fourth quarter, totaled $333.4 million.

“We’re seeing a strong economy in Southern California, and we’re seeing a lot of technology companies,” said Scott Porter, a Los Angeles-based partner with Ernst & Young LLP (EY). “We’re starting to see companies of scale forming here and headquartered here.”

IPO Interest

Porter predicted an uptick in companies in the region exploring entering public markets — as long as volatility and global tensions decrease.

“Something that everybody needs to recognize is the current geopolitical landscape and the impact it’s having on the business community,” he said. “There’s a still a lot of optimism for businesses here in the U.S., specifically in Southern California and in San Diego, but that’s being tempered a little because the companies and the executives aren’t sure what the longer-term prospects are.

Globally, IPO activity was down compared to the first half of the prior year, with 660 companies entering the public markets, 21 percent fewer than in the first two quarters of 2017, according to EY. However, proceeds from those offerings rose 5 percent year over year to $94.3 billion — the highest proceeds in the first half of a year since 2015.

Expecting a Resurgence

“The good news is that economic conditions continue to be encouraging, equity valuations are high in many parts of the world and interest rates remain low,” said EY’s Martin Steinbach, IPO leader for Europe, the Middle East, India and Asia. “As a result, we expect a resurgence in IPO activity during the second half of 2018.”

In the Americas, proceeds from IPOs rose 31 percent in the first half of the year compared with the same time in 2017 to $35.3 billion, according to EY; companies in the United States accounted for 85 percent of that volume. Businesses in the Americas that went public saw average first-day returns of more than 10 percent, the consultancy said.

An influx of technology companies entered the U.S. public market in the second quarter of 2018, and companies in that industry are gaining on health care companies, which dominated the markets in terms of deal count from 2013 to 2017, said Jackie Kelley, the EY Americas IPO markets leader.

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