IPOs Back From Bankruptcy

by: Renaissance Capital IPO Research

The IPO market will see two weeks in a row with an initial public offering from a company taken out of bankruptcy in a PE buyout.

Last week, radio station operator Townsquare Media (NYSE:TSQ) priced 27% below the range and ended the day below issue. The heavily discounted IPO raised $92 million, with an IPO market cap of $298 million ($772 million EV). Since Oaktree Capital bought the company in 2010, Townsquare has acquired portfolios of failing radio stations, increasing its footprint from 62 to 312 and returning to profitability ($92 million EBITDA in 2013; 27% margin).

SIRVA (NASDAQ:SRVA), which was bought in 2008 by Aurora Capital and Sam Zell, reduced its exposure to real estate after its bankruptcy and now operates an asset-light corporate relocation services model on top of a franchised transportation company. The Oakbrook, IL-based company plans to raise $185 million at a fully diluted market cap of $637 ($904 million EV).

Often bought by PE firms at fire sale prices, bankruptcy turnaround LBOs could have IPO investors demanding a valuation haircut as well. Given the performance of April IPO Sportsman's Warehouse (NASDAQ:SPWH), down 36% after pricing below the range), investors may question these companies' growth and credit risk this time around.

The 18 LBOs year-to-date have averaged a 2% loss, and 61% trade at or below their offer price. The larger deals have generally outperformed the smaller ones. Average post-IPO return for LBOs is -4% this year, far behind the IPO ETF's +4% gain. The ETF, a basket of recent IPOs and a benchmark for post-IPO performance, has traded up 2% today after Twitter (NYSE:TWTR), its second largest constituent, beat earnings and jumped 20%.

Recent LBO Performance
Company (Ticker) Deal Size ($mm) IPO Price vs. Midpoint Return as of 7/30
SIRVA $185 n/a n/a
Townsquare Media $92 -27% -1%
LBO'd IPOs - average 90 days $268 -11% -3%
LBO'd IPOs - average YTD $367 -15% -2%
IPO ETF - YTD n/a n/a 4%