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IPOs on tap include: Walker & Dunlop (NYSE:WD), Fortegra Financial (NYSE:FRF). Nine others scheduled for the week of December 13 totaling $2.26 billion.

Walker & Dunlop (WD) is a $150mm IPO with a market cap of $329mm at the price range mid-point of $15. Scheduled for Tuesday, December 14, 2010.

Summary
WD’s IPO is reasonably priced. It’s been consistently profitable for the past three years and is priced to sell at a P/E discount to NewStar Financial (NASDAQ:NEWS).

WD's P/E is 14 and NEWS' P/E is 22, annualizing the six months ended September 30 2010.

WD Valuation Metrics

Business
WD originates and sells multi-family through Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC). It funds loans for GSE and HUD programs through warehouse facility financings and sells them to investors in accordance with the related loan sale commitment, which WD obtains prior to loan closing.
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WD does not fund loans from WD’s balance sheet. During the loan commitment, closing & delivery process is not exposed to interest rate.

Demand for loans expected to increase

A substantial amount of commercial real estate loans are scheduled to mature in the coming years. According to the Federal Reserve Flow of Funds Accounts of the United States, $3.2 trillion of commercial real estate loans were outstanding as of June 30, 2010, of which $843 billion were multifamily loans.

It is estimated that $28 billion to $40 billion of multifamily loans held by investors other than commercial banks will mature each year from 2011 to 2014, according to the Survey of Loan Maturity Volumes, Mortgage Bankers Association. This amount would be considerably higher if it included multifamily loans held by commercial banks. As this debt matures, real estate owners will be required to repay or restructure their loans. In these scenarios, new debt will almost always be required, which WD believes will provide significant opportunities.

WD further believes that demand for multifamily and other commercial real estate loans will increase as the overall economy improves

Regulatory outlook
WD expects some degree of regulatory change is likely. Congress and other governmental authorities have also suggested that lenders should be required to retain on their balance sheet a portion of the loans that they originate, although no regulation has yet been implemented. WD may be subject to additional liquidity and capital requirements.

Separately, Fannie Mae has recently increased its collateral requirements under the Fannie Mae DUS program from 35 basis points to 60 basis points, effective January 1, 2011. The incremental collateral required for existing and new loans will be funded over approximately the next three years, in accordance with Fannie Mae requirements. Fannie Mae also has indicated that it intends to reassess the adequacy of its collateral requirements on an annual basis, starting as of October 2011.

Use of proceeds: Of $90 million from sale of 6.7mm shares: execute growth strategy, fund working capital and for other general corporate purposes. Shareholders intend to sell 3.3mm shares, 49% of the IPO.

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Fortegra Financial (FRF) is a $116mm IPO with a market cap of $305mm at the price range mid-point of $15. Scheduled for Thursday, December 16, 2010

Conclusion
Annualized earnings for the nine months ended September 30, 2010 results in a P/E of 20. This seems fairly priced, except margins may have topped out and further growth will be driven by top line revenue growth – historically only in the 11-12% range, plus strategic acquisitions. Some 65% of revenue is from recurring long term contacts; a plus. Offering 38% of the company in the IPO.

FRF Valuation Metrics

Business
FRF provides insurance services in three segments:
(1) Payment Protection, contributing 50% of revenue with a 54% EBITDA margin.
Marketed under FRF’s Life of the South brand; delivers credit insurance, debt protection, warranty, service contract and car club solutions along with administrative services to consumer finance companies, regional banks, community banks, retailers, small loan companies, warranty administrators, automobile dealers, vacation ownership developers and credit unions on a one to many model. For example, one retailer to many customers.

(2) Business Processing Outsourcing (BPO), contributing 24% of revenue with a 38% EBITDA margin. .
Marketed under the Consecta brand, provides a broad range of administrative services tailored to insurance and other financial services companies. Our BPO segment is our most technology-driven segment. Through FRF’s operating platform, which utilizes proprietary technology, FRF provides ongoing sales and marketing support, electronic underwriting, premium billing and collections, policy administration, claims adjudication and call center management services on behalf of clients.

(3) Wholesale brokerage, contributing 26% of revenue with a 24% EBITDA margin.
Marketed under FRF’s Bliss & Glennon brand, is one of the largest surplus lines brokers in California and ranked in the top 20 wholesale brokers in the United States in 2009 by premium volume. This business segment uses a wholesale model to sell specialty property and casualty (P&C) and surplus lines insurance through retail insurance brokers and agents and insurance companies

Leveraged buyout: As of September 30, 2010, affiliates of Summit Partners beneficially owned 88.6% of FRF’s capital stock

Use of proceeds: Some $55.3mm to FRF from sale of 4.3 million shares: Using $12.0 million to redeem redeemable preferred stock and $14.1 million to pay conversion amount on Class A common stock. (56% of proceeds to company). Using $29.2 million to repay debt; selling shares. Shareholders intend to sell 3.4 million shares, 44% of the IPO

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Walker & Dunlop, Fortegra Financial IPOs Against the Backdrop of Improving Economy