Last IPOs Of 2012 Focus On Yield, SolarCity Looks For Insider Support

by: Renaissance Capital IPO Research

Three companies, one of which priced, set terms last week, as dividend-paying IPOs continued to sustain an otherwise chilled US market. Including Western Gas Equity Partners LP (NYSE:WGP), which gained 27% in its first day of trading after an abbreviated roadshow, more than $1 billion was added to the U.S. IPO calendar. Filings also picked up after a two week lull, with two large PE-backed deals added to the U.S. IPO pipeline. Taylor Morrison (NYSE:TMHC), a top ten US homebuilder, and Taminco, a global chemicals company, each filed to raise up to $250 million. Both companies are profitable and generate over $1 billion in sales.

Western Gas marks another LP success

Western Gas Equity Partners LP raised $378 million in an upsized deal by offering 17.2 million shares (up from 15 million) at $22, above the range of $19 to $21. The stock opened for trading up 24% and climbed further on its first day before closing at $28, up 27%. It was the best first-day performance for an LP IPO year-to-date. Barclays, Citi, Deutsche Bank and Morgan Stanley were the joint bookrunners.

Western Gas Equity Partners LP holds general partner interests and 46% of the LP interests in Western Gas Partners LP (NYSE:WES), which itself provides midstream natural gas and NGL services in the US and is sponsored by major E&P Anadarko Petroleum (NYSE:APC). The deal was the sixth yield play out of the last 10 IPOs - all but one is trading up (19% average return).

Two more yield plays added to the calendar

In what was likely the last week for deals to move forward in 2012, PBF Energy (PBF) and Silver Bay Realty Trust (NYSE:SBY) announced plans to price this week. PBF Energy is looking to raise $429 million. Backed by Blackstone and First Reserve, which formed the company in 2008, it is the 5th largest US independent refiner, with refineries in Ohio, Delaware and New Jersey. Executive Chairman Thomas O'Malley was previously the CEO of Premcor and Tosco, two large, then-public refiners that were acquired in multi-billion dollar deals. Citi, Morgan Stanley, Credit Suisse and Deutsche Bank are the joint bookrunners.

Silver Bay Realty Trust, a REIT focused on single-family homes, is being carved out from publicly-traded mortgage REIT Two Harbors (NYSE:TWO). The company is hoping to raise $252 million. Credit Suisse, BofA Merrill Lynch and J.P. Morgan are the joint bookrunners.

Large homebuilder files for $250 million IPO

Taylor Morrison Home Corporation, one of North America's top ten homebuilders, filed on Wednesday for a $250 million IPO. In 2011, PE firms TPG and Oaktree Capital (NYSE:OAK) and Canadian investment company JH Investments formed TMM Holdings, which acquired Taylor Morrison from Taylor Wimpey, a UK-based homebuilder, for $955 million. Revenue totaled $1.3 billion during the 12 months ended September 30, 2012. Credit Suisse and Citi are the joint bookrunners.

With the US housing market seeing positive signs of a long-awaited recovery, Taylor Morrison hopes to become the latest IPO to tap what appears to be increasing investor appetite for pure-play investment opportunities in the sector. Major residential real estate broker Realogy (NYSE:RLGY), an Apollo-backed LBO, went public in October and is currently up 40% from its offering. IPOs from online real estate portals Zillow (NASDAQ:Z) and Trulia (TRLA) were also well-received by investors. US homebuilders - from Toll Brothers (NYSE:TOL) and Lennar (NASDAQ:LN) to D.R. Horton (NYSE:DHI) and KB Home (NYSE:KBH) - have rallied 45% to 110% year-to-date.

Chemical company revives offering

Taminco Global Chemical, the world's largest producer of alkylamines, also filed for a $250 million IPO. The company, whose products are used in a range of industrial, agricultural and pharmaceutical applications, is hoping to go public after nearly ten years in the hands of private equity firms. Formed in a 2003 carveout from biopharma UCB, it was acquired by CVC Capital Partners for 800 million euros in 2007. Following a failed IPO attempt in Brussels in 2010, Apollo bought it for $1.4 billion in late 2011. Sales were $1 billion for the 12 months ended September 30, 2012.

Following the Taylor Morrison and Taminco filings, the US IPO pipeline holds 115 companies looking to raise $33.0 billion. Of these, 44 companies have filed updates within the past 90 days. Healthcare (11 companies), technology (9) and financial (8) companies account for nearly two-thirds of the most active filers.

New insider buying for SolarCity deal

One of last week's updates came from SolarCity (NASDAQ:SCTY), which is expected to price this week. Late Friday afternoon, the solar panel installer announced reduced grant valuations by the Treasury and that Chairman Elon Musk would buy $15 million of shares on the IPO. The new insider buying (the reserved share program was also increased) raises questions about investors' demand for the deal, which is hoping to reverse the trend of underperforming clean tech IPOs. In 2012, three clean-tech IPOs have all priced well below the range, yet they have produced an average return of -55%. Four other companies, BrightSource Energy (OTCPK:BRSE), Luca Technologies (LUCA), Enerkem (NRKM) and Smith Electric Vehicles (SMTH) have withdrawn offerings.

US IPO performance update

The quick turnaround of busted IPO Ruckus Wireless (NYSE:RKUS), a rapidly growing Wi-Fi equipment provider, helped push up IPO market returns last week. Ruckus gained 33% last week, helped in part by an IDC report on the enterprise WLAN market indicating continued strong industry growth and market share gains for Ruckus. After falling 18% in its first day of trading, Ruckus is now up 17% from its offer price and an impressive 44% from its first day close, giving it the third best aftermarket performance among all IPOs priced within the last 90 days. Wall Street research is expected this week, which could provide a further boost for the stock.

Overall, IPOs from the past 90 days have produced an average total return of 18% (vs. 17% last week) and an average aftermarket return of 6% (vs. 5% last week). Year-to-date, 125 IPOs (equal to 2011's total deal count) have raised $41.8 billion. The average total return is 16%, and the average aftermarket return is 2%.