In 2010, a record number of China-based companies sought
listings in the US, representing 27% of deal activity that year.
US investor appetites were strong for opportunities to capitalize
on China's growth prospects and emergence as a world leading
economy. In 2011, however, a breakout of fraud brought on by
insufficient financial controls and disclosures created
skepticism of these companies over lofty growth rates and margin
expansion business plans, causing Chinese IPOs to quickly fall
out of favor. 2011 saw Chinese IPO deal flow fall 71% as demand
evaporated. Only one of the 12 deals that priced in 2011 posted
positive performance that year.
Investors remained wary in 2012
The generally negative trends and bleak outlook related to
Chinese IPOs continued in 2012, as four deals withdrew their
offerings and only two managing to price. Deal flow fell another
83% year-over-year or 95% from its 2010 highs. Of the 12 Chinese
IPOs in 2011, six produced negative returns year-to-date, three
are essentially flat and three have generated positive returns.
Tudou Holdings, one of the positive performers, was acquired in
March for a valuation ultimately lower than its 2011 offer price.
Most recently, the SEC has bought administrative action against
the Big Four accounting firms' Chinese affiliates, a result of
accounting scandals that added to the erosion of billions of
dollars of shareholder value.
Bright signs emerge on the 2013 horizon
While 2012 certainly did not offer a robust turnaround for
Chinese IPOs, a closer look at the two deals that were completed,
however, reveals what could be the onset of a trend reversal.
Vipshop Holdings (
), a "flash sales" website in China, and YY (
), a Chinese social platform, were the only two Chinese companies
to go public in the US in 2012. Both companies were met with
initial pricing pressure (VIPS priced a downsized deal below the
range and YY priced at the low end of the range); however, each
has ultimately produced solid aftermarket gains. VIPS, up 92%
from its offer price, has been able to grow market share and
deliver margin expansion due to leverage on pricing and
fulfillment expenses. YY, up 25% from its offer price, drew
investor interest from its 160%+ top-line growth year-to-date and
growing monetization (ARPU was up 53%).
The solid performance from VIPS and YY could prove to be a strong
indicator that investor confidence is building in Chinese IPOs,
albeit slowly. Should investors start to seek out Chinese IPOs in
2013, a pipeline of Chinese companies seeking US listings exists
to meet that demand, including Changyou.com spinoff, 7road.com,
lingerie B2C e-commerce platform Moonbasa and China's largest
online clothing retailer, VANCL. Our Private Company Backlog
currently has 15 China-based companies that could come to market
in the US in the next 12-18 months.
for more information on our Private Company Backlog or how to
obtain the complete list of expected 2013 Chinese IPOs.