The IPO Buzz: July’s Quality vs. Quanitity

 

In 2005, one deal was priced the week following the July 4^th break and, in 2004, one deal also was priced the week following the Independence Day break.

 

But don’t be so fast to count out July. The month has been better than average over the years.

 

Since 1970, July has averaged 9.39 percent of the annual IPO traffic, according to available reports. Based upon a 12-month year, an “average” month would be 8.33 percent.

 

From January 1970 through December 2005, bankers priced 11,976 IPOs and 1,125 made their debuts during July. These figures exclude such “IPOs” as closed-end funds, bank conversions and foreign companies offering their shares for the first time in the U.S. markets after being previously being traded in their own markets. These are actually secondary offerings.

 

The busiest July on record was not during the “insanity dot-com” era of 1999 and 2000. It came a decade earlier. July 1986 produced 79 deals. July 1983 produced 74 deals.

 

For the record, July 1999 produced 69 deals and July 2000 produced 42 deals.

 

However, the average size of IPO over the years has been increasing. Consider the following: July 1986’s 79 deals raised $1.7 billion, or an average size of $21.5 million. July 1983’s 74 deals raised $1.2 billion, or an average size of $16.2 million per deal.

 

You don’t see the bulge-bracket bankers running down Wall Street in their underwear chasing a deal that size these days. But they did 20-some odd years ago.

 

By comparison, July 1999 raised $14.1 billion, or an average size of $204.3 million per deal. July 1999 was the largest dollar amount raised during July. And July 2000 raised $8.58 billion, or an average size of $204.3 million per deal.

 

July 2005’s dollar amount was smaller, but the IPO market was not caught up in the super frothy times that it was during the “insanity dot-com” period of 1999 and 2000. Last July produced 24 deals that raised $2.85 billion, or an average size of $118.8 million per deal.

 

 

Now looking forward into the third quarter and going back in time, the IPO production line is slightly less than average. From 1970 through 2005, the third quarters produced 2,821 IPOs, or 23.6 percent of the 11,976 IPOs priced over than time span. An “average” quarter would be 25 percent of the annual traffic. There is a reason for the below-average production of IPOs during the third quarter.

 

The quarter starts on July 1 and ends on Sept. 30. Two of the nation’s biggest holiday weekends serve as high points that interrupt the IPO calendar during the third quarter. The first is the July 4^th break and then comes Labor Day.

 

The IPO production line generally closes down for about a month – the final two weeks of August (south of France, anyone?) and about two weeks after Labor Day (last chance for the Hamptons or Bermuda).

 

 

Now back to the present and this week’s IPO traffic.

 

Bankers hope to price seven deals during the week of July 10. They aim to raise over $1.1 billion.

 

There are three new candidates on this week’s IPO calendar expecting to raise $933.5 million. Those names are Allied World Assurance (NYSE: AWH proposed), Cowen Group (Nasdaq: COWN proposed) and Valero GP Holdings (NYSE: VEH proposed).

 

The rest of the names on the calendar have been there before.

 

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