The Initial Public Offering market remains readily accessible with the much anticipated offering of Facebook (FB) just weeks away and equity markets trading around four-year highs, despite a recent pullback. This week I will review the initial public offerings for the week of April 30 till 4 May.
Last week's IPO's
On average the IPO's were a great success if we compare the initial price reaction versus the offering prices. Shares of the four public offerings rose 5.5% on their first trading day and have gained 9.0% on average so far. Supernus Pharmaceuticals, the Carlyle Group and EverBank Financial have however lowered their public offering price in order to induce demand. Only the offering of Tilly's which raised the offer price vs. the initial pricing ranges had a truly successful debut.
In total the sample above managed to raise some $1 billion in order to finance their business objectives and growth plans, or provide existing shareholders with a cash out.
The specialty pharmaceutical company focuses on the development and commercialization of products for treatment of central nervous systems diseases. The company uses the gross proceeds of $50 million to fund the commercial launch of its SPN-538 drug and the development of other drugs in its pipeline. The company ended the fiscal year of 2011 with $49 million in cash and $30 million in short and long term debt. Including the net proceeds of $45 million from the public offering, the company will have a net cash position of approximately $68 million. The company is valued at $149 million and did not report any meaningful revenues for 2011. While shares gained 7.4% on their first trading day, and are up 19% since the public offering, the debut is still disappointing after the company initially tried to sell shares at a price range of $12-$14.
The Carlyle Group
The high-profile private equity firm had to lower its initial offering price to $22 per share in order to induce demand for its offering. Initially the company had hoped to sell its shares in the range of $23-$25. However low demand for the private equity offering forced the company to lower the offer price to $22 which values the firm at $6.7 billion. Many of its other public competitors have not fared well since their debut including Apollo Group, Blackstone and Oaktree Capital, something that clearly impacted investors' appetite for the offering. In an attempt to reassure markets, none of the founders have sold shares in the offering.
The financial corporation based in Florida eventually sold 19.2 million shares for $10 per share. Initially the company expected to sell 25 million shares for $12-$14 per share. Lowering the offering price induced demand and shares ended the week at $10.79, almost 8% above the offering price. The bank is focused on the origination and servicing of residential mortgages and has a high portion of jumbo mortgages on its books, predominantly in the state of Florida.
Shares of clothing retailer Tilly's ended their first trading day 8.5% higher after trading as much as 23% higher during the opening hours. The offering was a great success as the firm sold 7.6 million shares accompanied by another 400,000 insider sales. Initially the company tried to sell its shares in the price range of $11.50-$13.50, however the final offering price was set to $15.50. For the full year of 2011 the company reported a net profit of $34.3 million on revenues of $400.6 million.
Last week's weakness in the public offering market continued this week. Only Tilly's public offering was a great success, but the mediocre performance of other companies make it hard to label last week's offering market as a great success.
Some new details about the offering of Facebook did emerge however last week. The social networking website plans to sell shares at $28-$35 under the symbol of FB. The company would plan to raise some $10.6 billion which would value the firm at $86 billion. This valuation would mean a meaningful discount compared to previous valuations exceeding $100 billion on the back of private share transactions.
Facebook reported its first quarter results for 2012 which were disappointing. First quarter revenue growth slowed down to 45% compared to annual growth of 88% for 2011. First quarter revenues came in at $1.1 billion, while net income fell 12% to $205 million on the back of higher investment costs. At the $86 billion valuation, the company would be valued at 19 times annual revenues and 80 times earnings.
The small correction in equity markets has had an impact on the public offering market in recent weeks. Renewed worries about the European Sovereign Debt crisis and a growth slowdown in the US have resulted in weaker equity markets and initial public offering markets. Disappointing first quarter results of Facebook has even lowered demand for one of the most anticipated offerings ever.