Weekly Recap: SolarCity Launches, U.S. IPO Calendar Remains Light

by: Renaissance Capital IPO Research

Two deals launched last week, guaranteeing pricing attempts in December. Solar panel installer SolarCity (SCTY) set terms on Tuesday for a $141 million IPO, while biotech Audeo Oncology (AURX-OLD) plans to raise $49 million. However, Archstone's acquisition and slow filing activity have limited the chances of an active U.S. IPO market in December. That said, strong earnings results from several 2012 IPOs have helped raise IPO performance YTD and could help add a few deals to the calendar early next week.

Archstone Pulls Out of IPO Queue

Pending IPO Archstone, a Lehman-backed apartment REIT, was acquired by Equity Residential and Avalon Bay for $16 billion on Monday. The acquisition removed one of the largest companies from the IPO pipeline, which was expected to raise $3.5 billion and would have been the largest real estate deal since Blackstone purchased Hilton Hotels for $26 billion in 2007. Had Archstone chosen to float its shares, it would have been the largest commercial REIT offering in history.

Withdrawals Highlight Week of Slow Filing Activity

Five companies withdrew their IPO filings last week, including oil and gas E&P Ute Energy, Texas-based bank PlainsCapital, hydraulic fracturing company FTS International, Chinese light bulb maker TCP International, and biofuel producer Fulcrum Energy. Ute Energy was acquired in early November for approximately $860 million, while PlainsCapital was acquired in May for more than $500 million. Total withdrawals for the month of November reached 10, tying April’s total as the highest month for withdrawals in 2012. There were no initial filings this week, extending a streak that has now reached 15 days.

Official IPO Pipeline Continues to Dwindle

Archstone's acquisition and last week’s five withdrawals have shrunk the U.S. IPO pipeline, which currently stands at 116 companies, looking to raise $34.4 billion (compared to 123 companies looking to raise $39.6 billion at the end of the prior week). While eight companies were able to update their filings this past week, data suggest that half of the U.S. pipeline consists of stale or postponed deals. In the last 90 days, only 44 of the 116 companies in the U.S. pipeline have updated their filings. Additionally, 18 of the 116 deals on file represent postponed deals.

U.S. IPO Performance Update

A recent string of strong earnings reports has helped elevate IPO performance year to date. Notable 2012 IPOs that had strong earnings results last week include Five Below (NASDAQ:FIVE), Splunk (NASDAQ:SPLK), and Infoblox (NYSE:BLOX). Also pushing IPO returns higher was the strong performance of Facebook (NASDAQ:FB), which closed the month up 32.8%, its best one-month performance since its May offering. The average aftermarket return for IPOs from the past 90 days has risen to 4.7% and the average total return is up to 17.0%. These figures compare with a 0.2% average aftermarket return and a 13.0% average total return as of early November. Year to date, 124 U.S. IPOs have produced an average aftermarket return of 3.3% and an average total return of 16.9%.

Global Market Activity Finishes November Strong

While the U.S. IPO calendar is light, IPO activity overseas has picked up as 2012 winds down. Seven deals were able to price last week, raising $5.9 billion, including large deals like Russian telecom provider MegaFon and Chinese insurer PICC. Excluding A-share listings, the late surge for non-U.S. IPOs made November the busiest month since June 2011.

December Outlook

With the fast-approaching fiscal cliff, many companies appear to be waiting until next year to pursue its IPO. With only two deals on the U.S. IPO calendar and the absence of new companies setting terms last week, December is on track to have its slowest month since 2008. This December, which has historically been an active month, could be the third December in the last 10 years to see fewer than eight IPOs price.