Outlook 2016: U.S., Canada generate more funds via fewer PIPE deals; direct placements rise

By Stephanie N. Rotondo

Seattle, Dec. 31 – U.S. PIPE issuance was strong in 2015, as dollars raised outpaced year-ago levels – though via fewer transactions.

Issuers raised $19.76 billion from 684 private investments in public equity, according to data compiled by Prospect News through mid-December. By comparison, $18.92 billion was raised from 738 deals in 2014.

Nearly a fifth of PIPE offerings took place in May. Over the course of the month, $3.65 billion was taken in from 67 transactions. That amounted to 18.46% of the year’s market share.

In May, the broader markets also fared well, as the S&P 500 hit a new all-time high on better-than-expected U.S. non-farm payrolls figures for April. That data, as well improving consumer confidence levels, gave rise to the belief that the Federal Reserve would increase interest rates.

At its May meeting, however, the central bank elected to hold rates steady, though it opened the door for a rate hike as soon as June.

The Fed maintained rates at its June meeting, hinting that a September increase was likely.

And while July was another positive month overall, U.S. PIPE issuance waivered as the energy and metals and mining sectors were struggling amid declining commodity prices.

In July, issuers conducted just 64 deals, generating $544 million in proceeds, or 2.75% of market share.

The weakness in commodity prices – an ongoing trend that started to really take hold as the year wore on – was due in part to concerns about waning growth in China.

Also occurring in July was increasing concerns about Iran’s ability to begin exporting its oil again, as the country had inked a nuclear program agreement with the U.S. That raised concerns about an already-oversupplied crude oil market.

For the year, manufacturing issuers made up the largest portion of issuance. In that sector alone, $3.87 billion was raised from 154 private equity offerings – a total of 19.58% of market share.

Agriculture was meantime the underperformer of the year, with $56 million raised from five deals in the sector. That accounted for just 0.28% of market share.

In 2014, agriculture was the second lowest issuing sector and non-operating entities as the first lowest.

More RDOs in the market

The registered direct offering market also saw increased issuance in 2015, but this time in terms of the number of deals done.

A total of 92 direct placements took place through mid-December, generating $2.16 billion. In 2014, $2.26 billion was raised from 84 transactions.

March saw the most money raised in the RDO market. Issuers undertook 11 placements that month, raising $583 million, or 26.95% of market share.

The surge in RDO transactions came despite a volatile broader market. On May 10, the Dow Jones industrial average experienced its biggest decline of the year up to that point, falling over 332 points. The S&P 500 was also coming off recent highs. All of that weakness was attributed to a decline in oil prices, a strong dollar and concerns about China’s growth.

Some of the uncertainty in March was also blamed on a fresh round of stress tests. Those came on March 11, just one day after the Dow tanked. The good news was that all the largest U.S.-based banks passed. The bad news was that for Bank of America Corp., the passing grade was provisional and Goldman Sachs & Co., JPMorgan Chase & Co. and Morgan Stanley & Co. Inc. were forced to revise their payout plan to investors.

Two U.S. subsidiaries of European-based banks – Deutsche Bank Trust Corp. and Santander Holdings USA – failed their tests, however.

But RDO deals took a break in April, as the first quarter’s earnings season got underway.

For the month, five direct offerings were done for proceeds of $35 million, or 1.64% of market share.

Leading up to earnings season, the market was hesitant as GDP data had been weak. But the results were overall viewed as positive.

Canada does fewer deals

Canadian PIPE issuance followed the trend of the U.S. market, in that more dollars were raised from fewer transactions.

Through mid-December, 524 private equity placements were done for proceeds of C$5.5 billion. For all of 2014, C$5.31 billion was taken in from 651 deals.

November was the best month for Canadian issuers, as C$1.25 billion was raised from 56 deals. That accounted for 22.76% of the year’s market share.

The month was generally positive for the broader markets as many anticipated that the Federal Reserve would raise interest rates come December. Still, commodity prices continued to be under pressure, causing problems for energy and metals and mining companies.

December was meantime proving to be the most subdued month for Canadian issuance. Halfway through the month, only C$62 million had been raised from 14 transactions.

That came to just 1.13% of market share.

The last month of the year started off soft ahead of the Fed’s expected rate increase. Ongoing declines in commodities also weighed on the markets.

Amid the declining prices of basic materials, including crude oil, oil and gas companies made up the bulk of Canada’s issuance in 2015. That sector saw C$1.6 billion coming in from 54 deals, making up 28.95% of market share.

In 2014, mining was the best performing sector.

The most underrepresented sector in the space was construction, which saw just one deal getting done for proceeds of C$2 million, or 0.5% of market share. The year before, transportation was the weakest sector.

© 2015 Prospect News.
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