After a slow January, when only 4 deals priced, US IPO market
activity picked up in February. The 18 pricings during the month
were the most since May 2011 and 2 more than February 2011.
Excluding last year's $2.9 billion Kinder Morgan (
) deal, proceeds raised were up 32% to $1.7 billion, despite
substantial discounts. Perhaps mindful of weak performance last
year (when the average US IPO fell 10%), investors remained
discerning and highly sensitive to valuations. On average, offer
prices were 14% below the midpoint, and 45% of deals priced below
the range. As seen in the chart below, price discounts are at a
historic high in 2012.
In addition, the leap day proved difficult, as mortgage REIT
Provident Mortgage (
) and fabless chip supplier GCT Semiconductor (
) postponed and biotech Argos Therapeutics (
) delayed its deal. Two others, Platinum Energy (FRAC) and
Erickson Air-Crane (
), postponed in early February.
The good news is that the price discounting translated into
attractive returns. At the end of the month,
only three deals were trading below their IPO
, and the overall average return was 20%. Early investors
realized most of these gains: The average first day return was
18%, leaving only a 2% aftermarket return. Nevertheless,
maintaining positive aftermarket performance is critical to
sustaining an active and healthy IPO market.
Possibly buoyed by the excitement around the Facebook (FB) filing
on February 1, high growth technology companies continued to be a
strong draw. Six deals were technology related and half produced
returns over 35%.
The best performer overall was prototype manufacturer Proto Labs
(PRLB), which priced above its range at the end of February and
gained 92% by month's end. The worst performer was online
security company AVG Technologies (AVG), which traded down 18%.
Concerns over slowing growth and a recent decline in margins
contributed to AVG's poor reception, which could portend
difficulty for Avast Software (AVST). The competing online
security company filed for a $200 million IPO in December 2011.
February's strong returns were reflected in
a strong month for the FTSE Renaissance US IPO
, which is up 16% year-to-date. Internationally, activity was
slower, as only 3 non-US deals began trading, but things may be
picking up soon. Dutch cable firm Ziggo launched a billion dollar
IPO yesterday, and the largest South American investment bank,
Brazil-based BTG Pactual, filed for its own billion dollar deal
today. Korea Development Bank is rumored to be seeking an IPO in
the second quarter for $1.5 billion to $2.0 billion.
Lastly, there were
13 initial filings for US IPOs
, one fewer than last February. Two, Facebook and Empire State
Realty (ESB), proposed deals worth at least $1 billion, and five
were energy companies, including Enerkem (NRKM), which converts
municipal waste into biofuels.