The IPO Buzz: Sweet Baker’s Dozen

The two major reasons for resurgence in the IPO market are: (1) the stock market’s health and (2) the deals’ aftermarket performance.

 

The stock market is always the wind at the IPO market’s back or in its face, whatever the case may be. Over the last seven months, winds have been favorable. The major stock market indexes closed on Friday at levels that haven’t been seen since June 2008. In short, the bulls are on the run.

 

From July 2, 2010, the market’s most recent closing low, to Feb. 4, 2011, its recovery closing high, the Dow Jones Industrial Average gained 24.8 percent, the S&P 500 added 28.2 percent and the Nasdaq Composite Index was up 32.4 percent.

 

From the beginning of July 2010 through Friday, bankers have priced 104 IPOs, according to the U.S. Securities and Exchange Commission filings.

 

And the IPO Scorecard?

 

As of Friday, Feb. 4, 80 IPOs had closed above their initial offering prices, 24 below and the average gain for all 104 was 33.7 percent.

 

Note: Among those numbers, eight IPOs have more than doubled in price since going public. Molycorp (MCP), a Colorado-based producer of rare earth oxides, topped the winner’s list with a gain of 266.4 percent from its initial offering price.

 

Success breeds success. (Usually.)

 

The private equity-owned companies (P/E) had been out of favor with IPO buyers. As recently as November 2010, Caesars Entertainment, a Las Vegas-based casino, was forced to postpone its proposed offering of 31.3 million shares at $15 to $17 each to raise $500 million. The official reason was “due to market conditions.” What they really meant: Nobody wanted any part of a P/E-owned IPO.

 

Then a door opened in January.

 

Nielsen Holdings (NLSN), a provider of audience measurement systems and a P/E-owned company, burst forth in the IPO market. Bankers filed to price 71.4 million shares at $20 to $22 each to raise $1.5 billion. On Jan. 25, the deal was priced above range at $23 per share and raised $1.64 billion. Nielsen closed its opening day at $25.01; last Friday, the stock ended at $26.08, UP 13.3 percent from its initial offering price.

 

With an eye-popping performance like this, it didn’t take bankers long to polish up the silverware to serve up another blockbuster P/E-owned company. It is this week’s Kinder Morgan offering.

 

The company owns the general partnership and about 11 percent of the limited partnership interests of Kinder Morgan Energy Partners that trades on the New York Stock Exchange under the symbol of KMP.

 

Bankers plan to price 80 million shares at $26 to $29 each to raise $2.2 billion. Selling shareholders will offer all 80 million shares of the deal. None of the offering’s proceeds will go to the company.

 

Among the selling shareholders are: The Goldman Sachs Group, TCG Holdings, investment funds associated with Carlyle/Riverstone Global Energy and Power Fund III and Highstar Capital. After the offering, they will own about 52.3 percent of the outstanding shares.

 

The deal is expected to be priced Thursday evening and to trade on the New York Stock Exchange on Friday, Feb, 11.

 

Should this one do well in the aftermarket (and many think it will) then all eyes will turn to the IPO pipeline. They’ll find P/E-owned companies such as AMC Entertainment (looking to raise $450 million), HCA (looking to raise $4.6 billion) and Toys “R” Us (looking to raise $800 million). And who knows what lingers in the shadows, waiting to file to go public?

 

This brings us back to this week.

 

With an IPO calendar of 13 deals expecting to raise $3.4 billion, it’ll be a busy week for the bankers, issuers and investors.