As the U.S. economy began to improve, 2010 saw a rebound in the number of IPOs to a more normalized level as compared to the below average years of 2008 and 2009. There were 157 IPOs in 2010, with an average day one gain of 9.62%, as compared to just 32 IPOs in 2008 and 63 IPOs in 2009.
The top five underwriters for 2010 based on number of deals led and their day one average gain:
Underwriter, # of deals, average day 1 gain
- Morgan Stanley, 29, 8.32%
- Goldman Sachs, 22, 15.99%
- JPMorgan, 17, 8.56%
- Credit Suisse, 15, 16.53%
- BofA Merrill, 14, 20.02%
*Note: Many of the IPOs are co-lead managed deals, but these stats account for the primary lead manager.
The continued growth of the Chinese economy has lured many of U.S. investors, and in turn made the U.S. IPO market a preferred choice for many Chinese companies.
Of the 157 U.S. IPO’s in 2010, Chinese companies made up 38 of the offerings, including seven of the top 10 day one performers:
Company, Day 1 gain, Underwriter
- Youku.com (YOKU), +161.25%, Goldman
- ChinaCashe (CCIH), +95.32%, BofAMerrill
- E-commerce China Dangdang (DANG), +86.94%, Credit Suisse
- SouFun (SFUN), +72.94%, Deutsche Bank
- Mecox Lane (MCOX), +56.91%, Credit Suisse
- TAL Education (XRS), +49.5%, Credit Suisse
- Country Style Cooking (CCSC), +47.27%, BofA Merrill
The remaining top day-one performers were: MakeMyTrip (MMYT) +88.93% via Morgan Stanley; Vera Bradley (VRA) +55.31% via Baird; and SemiLeds (LEDS) +51.3% via BofA Merrill.
On the flip side, Chinese companies also accounted for some of the worst performers, accounting for five of the eight lowest day one returns:
Company, Day 1 loss, Underwriter
- Sky-Mobi (MOBI), -25.00%, Citi
- Bona Film Group (BONA), -22.35%, BofA Merrill
- SinoTech Energy (CTE), -19.29% UBS
- ShangPharma (SHP), -15.00%, Citi
- SYSWIN (SYSW), -11.43%, Morgan Stanley
The remaining top day one losers were: Mitel Networks (MITL) -12.14% via BofA Merrill; D.Medical Industries (DMED) -10.7% via Rodman & Renshaw; and GenMark Diagnostics (GNMK) -10.00% via Piper Jaffray.
The 2011 U.S. IPO market has been robust in the first two months with 25 pricings and an average day one gain of 6.58%. This compares to only 14 IPOs and an average day one loss of -1.25% in the first two months of 2010. One of the key attributes to the early 2011 IPO market has been the resurgence of the Private Equity backed IPO.
In general, PE backed deals in 2010 had a tough road, especially earlier in the year. Many closed flat to down on the first day of trading, as well as many needed to cut their price range to get done. Some of the notable 2010 PE backed deals (and their first day returns) were: Metals USA (MUSA), -8.57%; Niska Gas (NKA), -6.83%; Graham Packaging (GRM), +2%; Global Geophysical (GGS), 0%; NXP Semiconductor (NXPI), 0%.
On the contrary, 2011 has already seen three large PE backed deals that all were met with solid interest: American Assets Trust (AAT), $564M offering +3.66%; Neilson Holdings (NLSN), $1.63B offering +8.7%; and Kinder Morgan Inc. (KMI), $2.87B offering +3.5%. And there are more to come. The current pipeline includes a number of additional high profile PE backed deals, including HCA (expected next week), Toys R Us and AMC Entertainment, all of which filed in 2010.
Another category that looks to highlight the 2011 IPO year is that of technology. High profile Internet brands such as LinkedIn, Pandora, Active Network and Kayak have already filed for their IPOs, while many other names such as Hulu, Skype and Groupon are anticipated to enter the market in the second half of the year. There are also a number of Chinese tech and Internet companies that most likely will see solid reception for their U.S. IPOs, such as Renren (social network) and Tudou (a competitor of Youku). While many are waiting to see when Facebook will finally submit an IPO filing, which most likely won’t be until early 2012, there will be plenty of other tech IPOs to make for an intriguing 2011.
Overall the outlook is bright for the IPO market in 2011. Companies that had or would have had a hard time entering the market in 2010 are seeing a much warmer welcome. As the early entrants this year continue to see positive day one returns, the future only looks better for the large backlog of companies on the sidelines.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.