|
January 6, 2012
2011 IPO Review & 2012 Outlook
2011 saw tremendous volatility in the capital markets. The environment was extremely challenging for IPOs as periods of market stability were fleeting and valuation concessions seemed nonexistent. Launching under these conditions proved noxious; the majority of 2011 IPOs globally are trading below issue.
But, it’s the New Year and optimism abounds. There’s, in fact, positivity to be found. 2011 saw luxury goods and growth retailers in strong force. Even with flimsy economies and uncertain markets, consumer demand for high-end, discretionary goods was surprisingly robust. M&A activity was better than expected as well. Companies and investors sought growth through enticing market valuations and in turn IPO activity followed suit. Fast-growing retailers took advantage by raising capital and expanding stores in new markets and bolstering presence in existing markets. But of course, the marquee story of 2011 was the social-media emergence and the software companies’ new hurrah.
U.S. IPO Market
The Big Board raised slightly over $30bn and the NASDAQ, $10.3bn. Despite a strong start to the year (the majority of deals came in the first half of 2011), the US IPO market stumbled. By year-end, 57% of all US IPOs are trading below issue.
August and September were effectively closed for business. Only one of the six deals during that timeframe had a positive opening: Carbonite, Inc. (NSDQ: CARB) with an open vs. issue return of +8%. Overall, the US IPOs underperformed the major equity indices; the unweighted aggregate return of US IPOs, issue price to yearend, was -9.58%, while the S&P was flat for the year. A little apples to oranges, but it tells the story.
|
U.S. IPOs by Quarter
It could have been worse. The US marketplace was less affected by the global slump compared to the rest of the world, largely thanks to the Fed. With the Federal Reserve’s monetary policies coupled with several large private and venture-backed deals, raised proceeds weren’t too far off from 2010: about 7% less was raised. Accordingly, it was a record year for private equity-backed IPOs with $22bn in raised proceeds. This more than doubles the totals of 2010; the highest amount in a decade. Furthermore, three of the private equity-backed IPOs: HCA Holdings, Inc. (NYSE: HCA), Kinder Morgan, Inc. (NYSE: KMI), and Nielsen Holdings NV (NYSE: NLSN) were the largest private equity-backed deals of all time. The trio combined to raise $8.3bn in the first quarter and respectively returned 4%, 5.67%, and 7.61% from issue price to open price.
|
|
|
|
Top 10 U.S. IPOs - Performance
Issue Price vs. Open Price
|
Best
|
Worst
|
Issue Price vs. Year-end Price
|
Best
|
Worst
|
Open Price vs. Year-end Price
|
Best
|
Worst
|
The most prominent IPOs of 2011 came from social-media plays: Linkedin Corp. (NYSE: LNKD), Groupon Inc. (NSDQ: GRPN), Angie’s List Inc. (NSDQ: ANGI), and Zynga Inc. (NSDQ: ZNGA). Needless to say, these deals conjured quite the excitement and hype amongst investors and sideliners. But as the year trudged along, these IPOs fell from their lofty perches, with the exception of Zynga— it never even closed above issue. In all, 34 technology related and internet-based companies came to market including Jive Software (NSDQ: JIVE), Zillow, Inc. (NSDQ: Z), HomeAway, Inc. (NSDQ: AWAY), Pandora Media, Inc. (NYSE: P), Skullcandy, Inc. (NSDQ: SKUL), Fusion-io, Inc. (NYSE: FIO), and Yandex NV (NSDQ: YNDX) to name a few.
Top 10 U.S. Underwriters
Ranked by Market Share
Backlash from Chinese-based issuers’ accounting and reporting scandals, as mentioned in the 3rd quarter IPO Review, seems to have taken effect. In 2011, the value of Chinese companies delisting from US exchanges exceeded the amount of raised proceeds by Chinese companies via ADR IPOs. Of course there are other factors, e.g. slower growth, volatility, etc., but the high-profile allegations of fraud, the general lack of transparency, and the unusual structures of corporate governance has finally quelled demand.
U.S. IPOs by Industry
Ranked by Market Share
Asia-Pacific IPO Market
The tumultuous environment damaged many IPOs and left a hefty backlog in its wake. The top 10 largest IPOs are trading below issue and half of all Asian IPOs are trading below issue as well, including the two largest: dually-listed Glencore International PLC (GLEN.LN & 805.HK) on the London and Hong Kong Stock Exchange and Hutchison Port Holdings Trust (HPHT.SP) in Singapore. The two are trading down by at least 25%, well below the Hang Seng’s 19% drop.
Notable deals of the fourth quarter: Hosa International Ltd (2200.HK) priced @ HKD 1.60, opened @ HKD 1.48; New China Life Insurance Co. (1336.HK) priced @ HKD 28.50, opened HKD 26.00; Chow Tai Fook Jewellery (1929.HK) priced @ HKD 15.00, opened @ HKD 14.00; Nexon Co. (3659.JP) priced @ ¥1,300, opened @ ¥1,307 (but closed @ ¥1,270); China Lifestyle Food & Beverage (1262.HK) priced @ HKD 2.65, opened @ HKD 2.65; and China Outfitters Holdings Ltd (1146.HK) priced @ HKD 1.64, opened @ HKD 1.56.
With such dismal performances, issuers took heed and postponed en masse. According to Dealogic, 146 IPOs worth $25.4 billion postponed or cancelled their Asian debuts in 2011. The four biggest— Shanghai-listed lender China Everbright Bank Co. ($6bn), Australian coal and iron-ore miner Resourcehouse Ltd. ($3.6bn), Shanghai-listed construction-machinery company Sany Heavy Industry Co. ($3.3bn), and Shanghai-listed brokerage Haitong Securities Co. ($1.67bn).
TOP 10 GLOBAL UNDERWRITERS
|
Euro-area IPO Market
At the center of the sovereign-debt crisis, the Euro-area had its worst year for IPOs since late 2009. The second half of 2011 was essentially shutdown whereby the fourth quarter saw 17 IPOs priced with aggregate raised proceeds of under $500mm. The biggest story was the biggest IPO, Glencore International PLC (GLEN.LN) in London. Glencore debuted on May 19th raising $10bn. With the general reduction in commodity prices post-IPO, Glencore’s market value was hit with shares losing 30% since opening.
|
US Outlook 2012
The social-media theme looks to continue in 2012. All eyes will be on valuations with increased discernment and all wishes will be for stable markets. Especially now, the future is difficult to predict. Investment bankers are divided on whether a fourth quarter 2011 repeat will occur, bursts of new issuance scattered amongst dead weeks, or a relieving of the huge pipeline of IPOs as institutional investors, mutual funds, and hedge funds increase their risk appetite. Well, the pipeline has swelled to near record levels (200+ IPOs) with the help of 250+ companies submitting initial filings with the SEC in 2011. Unofficially, there’s also a comparable number of companies looking to come to market who have yet to file or submit anything formal, most notably Facebook and LivingSocial.
The Facebook saga continues… the biggest social-networking site has yet to file, but all eyes are upon them. Shares of Facebook have been actively trading for some time on private capital markets like SecondMarket and SharesPost. Speculative reports state that Goldman Sachs is duking it out with Morgan Stanley for the lead role in the IPO. CEO Mark Zuckerberg said that Facebook will release its financials to the public in April in accordance with regulator rules— an indication that a public offering isn’t far behind. Reports are still pointing to a $100bn valuation with a public raising of $10bn. Many hold hope that Facebook will spur the 2012 IPO market; however, a Facebook IPO is its own breed and not necessarily a barometer for other IPOs, or a catalyst.
Back in November Yelp filed for a $100mm IPO with Goldman Sachs, Citigroup, and Jefferies as the leads. Unsurprisingly, Yelp has set aside a particular class of stock, 10:1 voting power, to allow the founders, executives, and insiders more control over the company. The main contention surrounding Yelp is its boilerplate disclosures and questions over the validity of some of its online reviews (being fake etc.).
LivingSocial put off its IPO plans amid Groupon’s accounting issues and 2011’s market environment. While remaining private, LivingSocial focused on shoring up its finances and garnered $400mm in private investments at an approximate company valuation of $6bn. The company employs 10,000 people currently, only a mere 37 worked for the company back in June 2009. LivingSocial spent upwards of $600mm on marketing in the first nine months of 2011 which resulted in a net loss of $238.1mm. This was an expected result of such an aggressive marketing blitz.
A black eye for Fisker Automotive as the company will recall 239 Fisker Karmas produced between June 1st and November 3rd, 2011. The recall impacts a substantial portion of Fisker’s output. The Fisker Karam, a plug-in hybrid luxury sports sedan, is already 2 years behind schedule and the company was hoping to IPO in accordance. Fresh news ought to arrive in Q1 2012 which will shed light on the company’s IPO prospect.
Most companies have failed to take a piece of the Facebook pie. One however shows promise, Tumblr. The company’s website and products allow users to easily share photos, videos, and links in a customizable and fun way. The growth story has been breathtaking – the website gets 13bn page views every month; less than a year ago they were only receiving 2bn hits per month. Tumblr has been successful in fundraising as well raising $85mm recently; even Sir Richard Branson, Virgin’s CEO/founder, has participated in the fundraising.
Cloud computing was a buzz word of 2011, even though many couldn’t explain what it even is. The easiest way of looking at it is instead of owning and using your own physical servers stored locally perhaps in a closet, you instead connect to remote servers (in the “clouds”) and pay by usage. The provider is responsible for maintaining the cloud servers, not the users. Box.net during the past few years has become a big player in cloud computing business applications. Their products and services help reduce infrastructure costs and the complexities of servers, while data is more accurate through the ability of updating in real-time. The company has landed some high-level companies such as Procter & Gamble so far.
One of the leaders in online payments, Square, has developed a credit card reader that connects to mobile devices making it easier for merchants to accept payments and track inventory. Square is processing about $11mm a day in payments. Back in June, Square raised $100mm in private funding. It certainly ought to help the company that Jack Dorsey, one of the creators of Twitter, is a co-founder of Square.
Airbnb is a company that allows people to rent out their private homes. The traveler gets an affordable place to stay, while the owner receives some rental cash. This sector, as seen in HomeAway, is hot, but the business model isn’t foolproof or very unique.
In-flight Internet service provider, Gogo, recently filed for its IPO. The company is seeking to raise up to $100mm. Gogo has been growing rapidly like its sector brethren. The company charges consumers fees for in-flight Internet access across major carriers like Virgin and Delta and is now available in 1,180 commercial planes. The company doubled its revenue for the first nine months of 2011 to $72.9mm and turned a profit for the first time with $2.4mm. Private equity firm Ripplewood Holdings is the largest owner. Morgan Stanley, JPMorgan, and UBS are the leads. Gogo was formerly known as Aircell Holdings.
Other social-media and technology related companies to look for in 2012: Dropbox, Trulia, Spotify, and Kayak Software/Kayak.com
Within the private equity arena, 3 big deals to track: The Carlyle Group, Hilton, and Neiman Marcus.
One final note, Ally Financial hopes to float a $6bn IPO in 2012.
Asia-Pacific Outlook 2012
Asia saw a yearend pickup in IPOs, still the backlog is substantial. Investors are skittish for well-known reasons and deals have faltered as a result. There really is a gap between issuers and underwriters with investors. Many of the deals postponed in 2011 are gearing to go in 2012 once conditions are hospitable. There’s a massive need of capital across Asia due to the growth and investment needs in the region. So, it’s really just a matter of time until the floodgates reopen.
|
|
|
|
Highlights
Glencore International PLC
Biggest IPO of 2011
At the high of the commodities boom, Glencore dually-IPOed on the London and Hong Kong Stock Exchanges. Glencore's size in London was $10bn, while Hong Kong's portion was $317mm.
Goldman Sachs
Top Global Manager
With a commanding 6.9% market share of all IPOs globally, Goldman Sachs takes the top spot for manager of the year.
JPMorgan Securities
Top US Manager
JPMorgan was the top US underwriter for 2011. JPMorgan was involved in 60% of all US IPOs and underwrote 44 IPOs in the US marketplace.
159
Total Number of U.S. IPOs
2011 saw 32 less IPOs than 2010, but in terms of aggregate raised proceeds, 2011 only missed by 7%.
212
Number of Global Postponements/Withdrawals
212 IPOs either withdrew or postponed their debuts. Note, this figure include all IPOs regardless of deal size.
Zillow
Best U.S. Opening Performance
Online real estate information provider, Zillow (NSDQ: Z), posted the best opening vs. issue return with a whopping 200%.
Tudou Holdings
Worst U.S. Opening Performance
Tudou (NSDQ: TUDO), the online video company, flopped on its debut with a -13.41% open vs. issue return.
GNC Holdings Inc.
Best U.S. Buy & Hold
GNC (NYSE: GNC) provided the best open vs. year-end return of 74.4%
FriendFinder Networks Inc.
Worst U.S. Buy & Hold
FriendFinder (NSDQ: FFN) after opening at its issue price, epically tanked and was trading down 92.3% since opening.
Largest IPOs
of 2011
1
Glencore International PLC
Date: 5/19/11
Exchange: London & Hong Kong
Size: $10.3bn
RoR: -27% & -30%
2
Hutchison Port Holdings Trust
Date: 3/10/11
Exchange: Singapore
Size: $5.5bn
RoR: -41%
3
Bankia SA
Date: 7/18/11
Exchange: Madrid
Size: $4.4bn
RoR: -3%
4
HCA Holdings
Date: 3/9/11
Exchange: NYSE
Size: $3.8bn
RoR: -29%
5
Kinder Morgan
Date: 2/10/11
Exchange: NYSE
Size: $2.9bn
RoR: +1%
6
Prada
Date: 6/17/11
Exchange: Hong Kong
Size: $2.1bn
RoR: -15%
7
Sinohydro Group
Date: 9/28/11
Exchange: Shanghai
Size: $2.1bn
RoR: -6%
8
Chow Tai Fook
Date: 12/9/11
Exchange: Hong Kong
Size: $2bn
RoR: -6%
9
New China Life Insurance
Date: 12/8/11
Exchange: Hong Kong & Shanghai
Size: $2bn
RoR: -7% & 6%
10
Shanghai Pharmaceuticals
Date: 5/13/11
Exchange: Hong Kong
Size: $2bn
RoR: -44%
|
|
