The IPO Buzz: An IPO Summer Crush

On Tuesday morning, Aug. 7, Hi-Crush filed an amendment with the U.S. Securities and Exchange Commission to offer 11.25 million common units at $19 to $21 each.

 

Then its bankers announced the IPO would be priced on Wednesday evening, Aug. 15, to start trading on Thursday morning on the New York Stock Exchange under the proposed symbol “HCLP.” The joint-lead managers are Barclays, Morgan Stanley, Credit Suisse and UBS Investment Bank. The co-managers are Raymond James, RBC Capital Markets and Baird.

 

Based in Houston, Hi-Crush is a low-cost domestic producer of premium monocrystalline sand. And how does that type of sand differ from what was on, say, the women’s beach volleyball court in London in the Summer Olympics? (Now come on, we know all the men watching that event were much more concerned about the sand than, well, the bikinis or the scores.)

 

Monocrystalline sand is a specialized mineral used as a “proppant” to enhance the recovery rates of hydrocarbons from oil and natural gas wells.

 

Formed in 2012 as a limited partnership, Hi-Crush intends to make quarterly cash distributions of 47.5 cents per common unit, or $1.90 annually, to yield 9.5 percent based upon the mid-point of its filing range of $19 to $21 per common unit.

 

Hi-Crush Proppants plans to sell all of the common units in the offering. Hi-Crush Partners expects to have about 13.6 million common units and 13.6 million subordinated units for a total of 27.3 million limited partner units outstanding after the offering.

This is what is called “a yield play” – it’s in sharp contrast to last week’s high-profile offerings.

 

The first IPO “star” to make its debut last week was Bloomin’ Brands with its Outback restaurant chain. Fans of the Outback know that its Bloomin’ Onion appetizer is one part seduction, one part diet sabotage.

 

Bankers had planned – well, hoped – to offer 21.4 million shares at $13 to $15 each to raise $300 million. Investor demand for its stock was not as strong as people lining up to get a table at one of its restaurants. The deal was drastically slashed. Bankers priced 16 million shares at $11 each to raise $176 million – less than 41.3 percent of what had been planned.

 

They got the price right.

 

The stock opened at $11.60. It closed the week at $12.86, UP 16.9 percent from its initial offering price. That’s good for investors. Nevertheless, it was still down from $13 to $15 – its original filing range.

 

The other “star” on last week’s IPO roster was Manchester United with its world-famous football team (soccer in the good old U.S.A.). Bankers had planned – yes, hoped – to offer 16.7 million shares at $16 to $20 each to raise $300 million. Investor demand for its stock was not as strong as people lining up to get a ticket to one of its games. This deal, too, was drastically slashed. Bankers priced 16.7 million shares at $14 each to raise $233.3 million – less than 22.2 percent of what had been planned.

 

Did they get the right price?

 

Now that remains an interesting question.

 

The stock opened on Friday, its first day, at $14.05, and closed at $14, UNCHANGED from its initial offering price. But its NYSE trading volume was staggering – 32.4 million shares (16.7 million shares were offered) for a turnover ratio of 194.4 percent. That’s an extremely high turnover for an IPO reduced in size.

 

From January 2000 through December 2011, about 1,869 IPOs were priced, according to the U.S. Securities and Exchange Commission filings. Omitted from theses numbers are unit offerings consisting of common stock with warrants, closed-end funds and foreign companies offering their shares in the U.S. capital markets when their underlying shares were traded in their own securities markets.  

 

Of the 1,869 IPOs, 618 were priced below their original filing ranges. Their average opening-day turnover ratio was 42.2 percent. Their average opening-day gain was 1.66 percent.

 

(Note: Manchester United’s turnover was 194.4 percent)

 

Of the 1,869 IPOs, 1,251 were priced within and above their original filing ranges. Their average opening-day turnover ratio was 69.7 percent. Their average opening-day gain was 20.99 percent.

 

Conclusion: “Hot” money follows the pops, not the flops.

 

Let’s flip back to the evening of Thursday, May 17, 2012, when the infamous Facebook (FB) priced its IPO of 421.2 million shares at $38 each.

 

On Friday morning, May 18, Facebook opened at $42 and closed its opening day at $38.23, UP 23 cents from its initial offering price. Its NYSE trading volume was also staggering – 580.6 million shares (421.2 million shares were offered) – for a turnover ratio of 137.8 percent.

 

The following trading day, on Monday, July 21, Facebook closed at $34.03, DOWN 10.4 percent from its initial offering price.

 

This brings us back to Manchester United – a high-profile IPO with huge opening-day trading volume that closed unchanged from its offering price. Now we wait for Monday’s opening.

 

Stay tuned.