Renaissance Capital IP...'s  Instablog

IPO activity levels remained high this week with three companies submitting their initial filings and another three setting terms.

Telegent Systems (TLG), which offers single-chip solutions enabling worldwide live, free-to-air broadcast TV on portable devices, began the week by filing to raise up to $250 million in its public offering. The Sunnyvale, CA-based company, which was founded in 2004 and booked $124 million in sales over the last 12 months, plans to list on the NASDAQ under the symbol TLG. Goldman Sachs and Morgan Stanley are the lead underwriters on the deal.

On Wednesday, two more companies submitted their initial filings and two disclosed details regarding their upcoming IPOs. Sensata Technologies, a Texas Instruments spin-off that manufactures sensors and controls, plans to raise up to $500 million in a deal led by Morgan Stanley, Barclays Capital and Goldman Sachs. The Netherlands-based company, which booked $1.1 billion in sales over the last 12 months, plans to list on the NASDAQ. The second company to file was RedPrairie, which offers a platform of supply chain software solutions to manufacturers, distributors, and retailers. The Waukesha, WI-based company, which was founded in 1975 and booked $266 million in sales over the last 12 months, plans to raise $173 million in its offering. BofA Merrill Lynch and Credit Suisse are the lead underwriters on the deal.

The two companies to announce details on Wednesday were Linkage Technologies (BOSS), a Chinese telecommunications software and services provider, and Pebblebrook Hotel Trust (PEB), a recently formed hotel investment company based in Bethesda, MD. Linkage Technologies plans to raise as much as $143 million by offering 10.2 million American Depository Shares at a price range of $13.00 to $15.00. Citi and Barclays Capital are the lead underwriters on the deal, which is expected to price the week of Dec. 7. In a slightly bigger deal, Pebblebrook plans to raise $350 million by offering 17.5 million shares at $20 each. The company intends to focus on the upscale lodging segment and hopes to benefit from a recovery in business and leisure travel as the economy improves. BofA Merrill Lynch, Raymond James, and Wells Fargo Securities are the lead underwriters on the deal, which is expected to price the same week.

The week ended with a third company setting terms for its IPO: Cobalt International Energy (CIE), an independent E&P firm with deepwater prospects in the Gulf of Mexico and off the West African coast. The Houston, TX-based company plans to raise $1 billion by offering 63 million shares at a price range of $15.00 to $17.00. At the mid-point of the proposed range, Cobalt will command a market value of $5.3 billion. Cobalt International Energy, which was founded in 2005 and has no proved oil and gas reserves to date, plans to list on the NYSE under the symbol CIE and use Credit Suisse, Goldman Sachs, and J.P. Morgan as lead underwriters on the deal.

A total of thirteen companies went public in the past month, five of which made their debuts last week, making it the second busiest IPO week of the year. Coupled with the fact that eight companies submitted initial filings with the SEC and three announced terms during this same week, the IPO market is well on its way to witnessing a level of activity that has not been seen in nearly two years. Looking ahead, there are already six companies scheduled to price in December, a number that we expect to increase after the holiday weekend as companies rush to complete deals before the IPO market officially closes up for the year.

Signs pointing to a more robust IPO market are especially piquing the interest of the venture capital community. Year-to-date, there have been nine VC-backed IPOs (17% total), compared with the seven that took place during 2008 (23% total). These nine deals raised approximately $1.2 billion in proceeds, double the amount raised in 2008. The upward trend is expected to continue with IPOs in the pipeline including an increasing number of venture-backed tech companies that hope to mimic the recent successful debuts Fortinet (FTNT) and A123 Systems (AONE). New venture-backed entrants into the IPO pipeline include mobile TV chip designer Telegent Systems (TLG), broadband access equipment vendor Calix Networks (CALX) and online pay-for-performance marketing firm QuinStreet (QNST). Even biotechs are entering the fray, with recent IPO filings from Ironwood Pharmaceuticals (IRWD), Trius Therapeutics (TSRX) and Alimera Sciences (ALIM). Of the 21 new IPO filings over the last month, 11 (more than 50%) have come from companies with venture funding. In aggregate, these new venture-backed IPO filings plan to raise over $1.4 billion with individual deal sizes range from $55 million to $250 million.

Most recent venture-backed IPOs have performed well

Network security specialist Fortinet (FTNT), which debuted last Wednesday, experienced a first day return of 33%, ranking fifth on our list of highest first day "pops" year-to-date in the US. Four of the top ten deals on this list are venture-backed. Fortinet's backers are Redpoint Ventures and Meritech Capital. Other venture-backed companies that have been well received by investors this year include online restaurant reservation companyOpenTable (OPEN), which rose 59.5% when it debuted on May 20, battery systems provider A123 Systems (AONE), which rose 50.3% on Sept. 23, and remote connectivity software provider LogMeIn (LOGM), which rose 25.1% on June 30. Notably, most of the venture-backed IPOs so far this year have held up in the aftermarket, leading to a number of successful follow-on offerings and providing further liquidity to venture investors.

In addition to OpenTable and LogMeIn, enterprise software vendor SolarWinds (SWI) priced an all-insider secondary offering in mid November, while ondemand clinical trials management software provider Medidata (MDSO) recently filed for a follow-on offering (also 100% insider).

Offerings like these have caught the attention of venture capital investors, who have been struggling to monetize their portfolios ever since the market meltdown brought overall IPO activity to a standstill in 2008. However, with the broader markets rallying strongly off their lows, valuation multiples rebounding to healthier levels, and most importantly, IPO investors warming up to attractive growth stories, the environment for venture-backed IPOs is set to pick up over the next several months, particular from more mature venture-backed companies with proven revenue models and sound levels of profitability.

Three companies announced terms last Friday, Nov. 20, all of which are based in China and expect to offer American Depository Shares in their offerings.

Concord Medical Services Holdings (CCM), a major operator of radiotherapy and diagnostic imaging centers in China, announced terms only three days after submitting its initial filing. The Beijing-based company plans to raise $120 million by offering 12 million ADSs at a price range of $9-$11. At the mid-point of the proposed range, Concord Medical Services Holdings will command a market value of $491.5 million.

At the same price range, Trony Solar Holdings (TRO), which provides solar photovoltaic (PV) modules, plans to raise $242 million by offering 19.5 million ADSs. It raised the target from the $200 million it initially filed for on Oct 30. At the mid-point of the proposed range, Trony Solar Holdings will command a market value of $453 million. The solar company, which was founded in 2003 and booked $79 million in sales over the last 12 months, plans to price its deal the week of Dec. 7.

China Nuokang Bio-Pharmaceutical (NKBP) plans to offer 5 million ADSs, including 473,000 from selling shareholders, at a price between $10 and $12 per ADS. The company, which sells 14 hematological and cardiovascular products, was founded in 1997 and booked $40 million in sales over the last 12 months.

Eight companies filed with the SEC to go public last week, three of which were Chinese companies planning to offer American Depository Shares.

The week started off with Hirschfeld Industries (HSFD), a leading integrated provider of highly-engineered steel components for infrastructure applications, which filed on Monday to raise up to $150 million in its initial public offering. The San Angelo, TX-based company, which was founded in 1946 and booked $321 million in sales over the last 12 months, plans to list on the NYSE under the symbol HSFD. J.P. Morgan and Robert Baird are the lead underwriters on the deal.

Concord Medical Services (CCM) followed, filing on Tuesday to raise up to $100 million. The leading operator of radiotherapy and diagnostic imaging centers in China was founded in 2007 and booked $36 million in sales over the last 12 months. The Beijing-based company plans to list on the NYSE with Morgan Stanley, J.P. Morgan, and CICC acting as the lead underwriters on the deal.

On Wednesday, Linkage Technologies International Holdings (BOSS), a leading provider of software solutions and IT services for the telecommunications industry in China, filed to raise up to $175 million in its IPO. The Nanjing-based company, which commenced operations in 1997 and booked $122 million in sales over the last 12 months, plans to list on the NYSE. Proceeds from the deal will be used for research and development efforts, as well as general corporate purposes. Citi and Barclays Capital are the lead underwriters on the deal.

More »