It's been said all you need to know about how an IPO might trade on its first day can be found on the front page of its prospectus. Recently more information has been added.
Reading the IPO Tea Leaves
Reaching back over the last 10 years from January 2002 through August 2012, a total of 1,474 IPOs have been priced, according to the U.S. Securities and Exchange Commission [SEC] filings. This excludes unit offerings consisting of common stock and warrants.
Of that number, 456 IPOs were priced above their original filing terms and scored an average opening-day gain of 26.5 percent. That was more than double the average opening-day gain of 12.86 percent for all IPOs. The reason was a simple case of Econ 101: A limited supply versus a large demand results in higher prices. On the flipside, 538 IPOs were priced below their original filing terms and scored an average opening-day gain of 1.26 percent. Once again, Econ 101 came into play: A large supply versus a limited demand results in lower prices.
Fast Track to the IPO Market
When the Jumpstart Our Business Startups [JOBS] Act was signed on April 5, 2012, it eased the requirements for "emerging growth" companies to go public. This lets companies with revenues of less than $1 billion to secretly file S-1 plans with the SEC.
In time, the filing is made public, and the company can launch its IPO "road show" as soon as 21 days later. Before then, it could take anywhere from 90 to 180 days before an IPO could surface on the calendar.
As a result of the JOBS Act, something new has been added to the front page of many of today's prospectuses. It might say:
In addition, we qualify as an "emerging growth company" as defined in Section 2(a)(19)of the Securities Act of 1933… (Source: Hi-Crush Partners (HCLP) posted its S-1 filing on July 9 and priced its IPO on Aug. 16.)
We are an 'emerging growth company' under the U.S. federal securities laws and will be subject to reduced public company reporting requirements. (Source: Manchester United (MANU) posted its S-1 filing on July 13 and priced its IPO on Aug. 13.)
Performant Financial Corporation is an 'emerging growth company' as defined under the federal securities laws…(Source: Performant Financial (PFMT) posted its S-1 filing on July 13 and priced its IPO on Aug. 10.)
Note: The above examples are the last IPOs to have been priced this summer before the Labor Day break.
Looking to the IPO Future
Under these new guidelines, September could shape up as a good month for the IPO market. It won't take long for a company to jump on the calendar. Let's take a look at a sampling of recent filings.
We are an "emerging growth company" as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements.
We are an "emerging growth company" under applicable U.S. federal securities laws and may elect to comply with reduced public company reporting requirements.
Workday (WDAY) is a Pleasanton, California-based provider of cloud-based applications for human capital management. On Aug. 30, the company's S-1 filing was posted, but this time the reader had to work. Buried on page 26 of the prospectus was: "We are an emerging growth company."
The key words in all of the above: "emerging growth company." So we are off and running.
In closing, a good stock market is needed for a healthy IPO calendar. The Nasdaq Composite Index, the barometer of the IPO market, was UP 18.9 percent over the last 12 months. It closed on Friday, Aug. 31, 2012, at 3,066.96 - UP from 2,579.46 on Aug. 31, 2011.
Disclaimer: Neither the author nor anyone else on the IPOScoop.com staff has a position in any stocks mentioned, nor do they trade or invest in IPOs. The author and IPOScoop.com staff do not issue advice, recommendations or opinions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.