Revived IPOs Facing Cold Reception

by: Renaissance Capital IPO Research

Entering last week, the IPO market appeared to be heating up quickly. Coming off a record pace through April, the US IPO calendar had swelled to its highest level since December. The surge came in large part because five companies that had previously postponed deals were now staging second attempts at IPOs. That only five of twelve deals priced was both a clear sign of continued investor discipline and a reflection of weak returns in the second quarter: In the 2Q12, the FTSE Renaissance US IPO Index, down 9%, has trailed the S&P 500's -4% loss, although it continues to outperform the index year-to-date (9% vs. 8%). The six withdrawals and postponements during the week were the most since the week of January 30 and far above the average of 1.6 per week year-to-date.

Five pricings are still above average (3.5 per week through April) though, and investors rewarded two companies that offered strong secular growth stories. Audience (NASDAQ:ADNC), a chip supplier for the iPhone, priced above the range and is trading up 16%, and Ignite Restaurant Group (NASDAQ:IRG), the operator of Joe's Crab Shack and Brick House Tavern + Tap, priced at the high end of its range and is up 22%.

The five revived deals, however, mostly met with renewed skepticism. Employee spending account provider WageWorks (NYSE:WAGE) and industrial vacuum maker Edwards Group (NASDAQ:EVAC) both priced below their ranges, although WageWorks produced the largest first-day pop of the week (40%) and is trading up 22%. The other three were unable to complete their IPOs; two marketing solutions providers Loyalty Alliance Enterprise (LAEC) and TIM w.e. (TMWE) delayed their offerings and could price this week, while LINC Logistics (anticipated ticker LLGX), a supply chain logistics provider to the US auto industry, postponed its deal. Despite outperforming expectations since its prior postponement, LINC failed to generate excitement, partly due to a troubling governance picture.

The disappointing IPO activity was exacerbated by a sharp drop in terms announcements. Only three companies have set terms this month, and the calendar is at its lowest level since early March. Furthermore, confidential filings under the JOBS Act have limited growth in the pipeline, which is down to 170 companies from a high of 218 in January. The lag may be over soon though, as one of the first companies to file confidentially, LegalZoom (NYSE:LGZ), made its first public filing on Friday.