Helen Avery
Wednesday, September 16, 2009
Boost in markets reignites demand; Private equity players return
The first two weeks of August were the busiest in new filings for IPOs in the
Almost 30 companies filed for IPOs in August, up from 17 in July and 11 in the
first six months of the year.
According to Scott Sweet, senior managing partner and principal researcher of
IPO Boutique, there are several reasons why new filings have surged. "With
the exception of financial IPOs, the IPOs that have debuted this year have
performed well, and companies are starting to notice," he says.
Lisa Carnoy, global head of equity capital markets at Bank of America Merrill
Lynch, believes that companies, encouraged by the performance to date, are
viewing the equity markets as offering a way into the debt markets. "Some
companies with little access to the debt markets and wide credit default
spreads could tap the equity markets and then return to the capital markets to
do a debt deal," she says.
On the demand side, as the markets have improved underwriters have found
willing buyers for IPOs. The market rally over July and August prompted the
large number of filings. "The number, quality and size of institutional
orders is as good as I've ever seen it," says
Carnoy. "There is lots of demand from mutual funds, pension funds and
other asset managers. Even in small-cap IPOs there are at least 100 to 150
indications of interest."
According to Sweet, investors are looking for companies that have higher
revenues year on year, decreasing losses and/or increasing profits, and low
debt loads. The pipeline is broadly spread across sectors. Technology firms,
which have accounted for several of this year's IPOs, remain interested, and
there are also representatives of healthcare companies, real-estate investment
trusts, hotels and banks.
Self-serving
The private-equity-backed deal makes a notable
reappearance with the KKR-led IPO of semiconductor developer Avago in August.
The company managed to issue shares at the top of its $13 and $15 range and
sold 7.2 million more shares than expected. The deal has encouraged KKR to come
back to the pipeline. It is in advanced preparations for an IPO of retailer
Dollar General that could raise as much as $750 million. The deal would be the
first time that KKR underwrites one of its own IPOs.
InfrastruX is a second private-equity-backed deal in the pipeline. The company
provides construction services to gas and electricity companies and is owned by
Tenaska Power Fund, a private-equity fund that invests in power generation.
Carnoy says that in addition to the increase in the number of filings of
sponsor-backed IPOs, there have also been several recent filings of
sponsor-backed follow-on offerings. "In the case of several of these
follow-ons, 100% of the deal is secondary shares," she says.
Despite the bulge in the pipeline to 50 deals, only two have set a filing
range, with actual trade dates to be determined. "There is still a bit of
a wait-and-see situation going on," says Sweet. "There is enough
interest out there now, however, so barring any negative market events, these
deals should come to market in the late third quarter/fourth quarter."
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