With its regular August hiatus approaching, the US IPO market
began stumbling last week.
Only two deals
, Eloqua (
ELOQ
) and Globus Medical (
GMED
), priced while an equal number withdrew. In the shadow of the
busiest week since March (7 IPOs priced during the week of July
23), half of last week's expected deals, including online legal
service LegalZoom.com (
LGZ
), were delayed or postponed. Newly formed real estate company
Aina Le'a (
AINA
) ended a two-week filings drought, but with only 10 for the
month, it was the
slowest July
for filings since 2003. Although confidential filings under the
JOBS Act have played a role, we do not think they fully explain
the slowdown and we speculate that activity has decreased.
Valuation pressure strikes
Recent deals have faced considerable valuation pressure, and over
a third have
priced below the range
in the past month. Although Eloqua, an on-demand marketing
software company with healthy 25% growth, priced at the high-end
of its range on Tuesday, it was valued at a discount to its SaaS
peer group. On-demand supply chain software company E2open (
EOPN
), which priced the week before and fell 9% on day one, had been
priced in line with its SaaS peers despite uneven historical
growth. Prior to E2open, all five of the year's on-demand
companies had priced above the range, many at premium multiples.
LegalZoom.com, which, like Eloqua, offers 20%+ growth and expects
to expand margins, was being pitched at a premium to many other
online subscription services. The postponement may have reflected
management's unwillingness to accept a similar discount. Spine
implant provider Globus Medical, which priced on Friday after
slashing its valuation by over 30%, rose 13% on its first day.
Eloqua gained 12% on its first day and rose another 16% on Friday
to finish the week up 30%.
Paying for growth
While the recent pricings may indicate increased price
sensitivity from IPO buyers, not all companies have needed to
yield ground on valuation. The past month's top two performers,
Five Below (FIVE) and Palo Alto Networks (PANW), both priced at
premium multiples and above upwardly revised ranges. The keys for
both were unique concepts and extremely fast growth, over 50% for
Five Below and more than 100% for Palo Alto. At the end of last
week, Five Below and Palo Alto were up 75% and 30%, respectively.
The strong investor appetite for growth was also reflected in the
July 19th withdrawal of guitar maker Fender Musical Instruments
(FNDR), whose famous brand name failed to overcome tepid growth
prospects.
The 16% total return for IPOs in the past month is well above the
S&P 500 return (0.1%) over the same period and exceeds the
12% year-to-date average. While most of the performance was
captured on day 1, the 2% average aftermarket return represents a
strong bounce back from negative returns year-to-date. More than
75% of the deals, versus 63% year-to-date, are trading above
their offer prices.
Five new deals coming next week
Five companies
will try to achieve similar results next week. Restaurant
companies Bloomin' Brands (BLMN) and CKE (CK), both of which are
returning to the public markets after being LBO'd by large
private equity firms (Bain and Apollo, respectively), will seek a
total of $500 million dollars in proceeds. Performant Financial
(PFMT), a debt collection agency, is hoping to raise $150
million, and wireless-focused Peregrine Semiconductor (PSMI) will
be the first attempted chip deal since Audience (ADNC) in May
2012. Finally, Manchester United (MANU), a storied English soccer
club, will look to capitalize on its 659 million worldwide
supporters in a $300 million deal. If it prices at the midpoint,
its $3 billion market cap would make it the 7th largest IPO of
2012. If all deals price, the US market will have seen 91 IPOs so
far in 2012, just shy of last year's total before the IPO market
experienced a long, 2-month dry spell.