All four IPOs this week were backed by private equity companies and priced below their proposed ranges. With the IPO market heating up in recent months, companies looking to raise capital have been forced to discount their deals to accommodate a highly price-sensitive investor base.
The week started off with two deals pricing on Tuesday: Team Health Holdings (TMH), a Blackstone-backed provider of staffing to hospital emergency departments, and Cobalt International Energy (CIE), an oil E&P firm with deepwater prospects in the Gulf of Mexico and off West Africa backed by the Carlyle Group and Goldman Sachs. Blackstone had originally planned to sell 9 million shares in the Team Health offering but ended up selling none, a move that likely indicates pushback from investors. Primary shares were increased from 10 to 13 million and although the stock priced 20% below the midpoint of its proposed $14-$16 range, shares traded up 7% in their debut. Cobalt, which has no proved reserves to date and does not expect to generate revenue until at least 2012, similarly sold only primary shares, pricing 63 million shares at $13.50 (below the $15-$17 range). The company's high risk profile led to some investor resistance; the stock was flat in its debut and has since fallen almost 2%.
The second energy company of the batch, Crimson Exploration (CXPO), priced the following day, along with Kraton Performance Polymers (KRA), the world's leading provider of styrenic block copolymers (rubber-like components used in making products ranging from asphalt to toothbrushes). Crimson raised $100 million, which was 21% less than expected, by offering 20 million shares at $5. The company originally planned to sell 18 million shares at a range of $6-$8. Kraton, which is owned by TPG and JPMorgan's private-equity arm, priced 10.3 million shares at $13.50, well below the midpoint of its proposed $16-$18 range. Kraton remained flat in its first day of trading, while Crimson fell almost 14%.
A fifth deal by National Beef (NBP) was also scheduled to debut this week but its offering was shelved due to poor market conditions.
This week's setbacks indicate investors are taking advantage of their buying power, becoming increasingly selective and demanding concessions from these private-equity firms that are eager to monetize their portfolios. The eleven filings that have already taken place this month (three of which are PE backed) provide evidence that the recent uptick in IPO activity will likely be sustainable in 2010.
Disclosure: No positions
Disclosure: No positions