IPO Insight

On the first friday of every month, we will provide analysis of Initial Public Offerings (IPOs) that have taken place in the previous month.

Recovery Continues in July as IHH, Kayak and Palo Alto Networks Shine.

Three positive offerings this month emphasized the IPO market’s health as the turnaround continues.

Kayak Software debuted on the NASDAQ on the 20th July, raising $91 million in a small offering. With its IPO price initially set at $26, the travel software engine hit a lunchtime peak of around $33.80, before closing slightly below this up 27%. As NASDAQ’s first major listing since Facebook’s troubling start in May, many feel that its success has gone some way to replenish the bourse’s dented image despite it raising much less. The rally comes in the face of speculation that Google’s entry into the market could cause difficulties for the firm, but Kayak’s executives are adamant that the internet powerhouse is out of its depth when it comes to travel information, and that the company already has an unparalleled global presence. The firm’s lead underwriter was Morgan Stanley, which remains the tech underwriter of choice, with Deutsche Bank also lending their services for the month’s first big offering. Kayak wasn’t the only big debut that day, fellow tech firm Palo Alto Networks raised over $260 million on the NYSE. It named its starting price at $42 and opened on Thursday at $55.20 before closing at $53.13, up 27%. The firm, which produces hardware and software to stop data threats entering an enterprise environment, has risen to prominence as high profile security breaches have hit the news. The firm’s lead bookrunners were Morgan Stanley, Citigroup and Goldman Sachs; Credit Suisse, Barclays and UBS were also involved.

Following last month’s successful listing of Felda Global Ventures, Asia saw another strong offering on July 25th as IHH Healthcare joined the markets in Malaysia and Singapore. Asia’s largest hospital operator raised $2 billion in the year’s 3rd largest IPO, after Facebook and Felda in May and June respectively. Its opening price on was between $0.96-$0.97; 9.6% above its IPO price of $0.88. It was heralded a triumph later that day when the offerings in both countries had topped 10% increases. Despite both recent Asian offerings relying on government funds and cornerstone investors (who must hold their shares until an agreed date), many feel that this has made the East a bright beacon for initial public offerings during stormy market conditions. Aside from its location, analysts have pointed to strong growth prospects (brought about by aging populations and ambitious plans) and the ‘recession proof’ nature of healthcare as reasons for IHH’s success. Bank of America Merrill Lynch, CIMB and Deutsche Bank co-ordinated the move, while Credit Suisse, Goldman Sachs and DBS acted as bookrunners.

June Sees Promising Starts for Felda, ServiceNow

Two late offerings this month have helped quell fears that the IPO market is in trouble following a bumpy May. 

June 28th saw the successful debut of Felda Global Ventures in Malaysia. This, the year’s second biggest IPO (after Facebook), arose from the Malaysian government’s desire to privatise the palm oil supplier, which was started over 50 years ago as an attempt to bring lower class Malaysian farmers out of poverty. The offering’s initial price was set at 4.55 ringgit and, following a morning surge which saw it trade 20% above the open, it closed at 5.30 ringgit, up 16%. Impressive showings like this have been a rarity of late; with Asian markets suffering as a result of slowing Chinese growth and Europe’s debt crisis. Analysts have pointed to shrewd pricing and the food businesses resilience to recessions as reasons why Felda bucked the trend. CIMB, Morgan Stanley and Maybank acted as joint bookrunners, while Deutsche Bank and JPMorgan assisted with the underwriting.

Things got even better for the IPO market the following day, when ServiceNow joined the NYSE. The cloud-computing service, who’s main selling point is a self-service application for its clients’ employees, was priced initially at $18 a share but had rose 37% to $24 by closing. This offering was seen as key victory for the US IPO market following Facebook’s sharp decline last month. Although ServiceNow also had an unproven valuation, analysts have pointed to the fact that cloud computing has strong growth projected, while social networking’s future is a lot more ambiguous. The jump also helped Morgan Stanley regain some confidence following its Facebook woes; securing its place as the tech underwriter of choice.

An Underwhelming May Sees Facebook, Carlyle Slip

May had two highly anticipated IPO’s, the first coming from The Carlyle Group. The private equity giant notably cut its offering price in the run up to their May 3rd listing. At the end of the day, they had just closed 5 cents above their $22 starting price, translating to a total valuation of $6.7 billion. Things haven’t improved much since; with the firm down around 5% by the end of May. While the stock's sluggish behaviour could be attributed to a bullish market as of late, there seems to be a wider trend emerging. The poor performance of private equity offerings is no secret on Wall Street. Several of Carlyle's competitors including Blackstone and Apollo have seen declines since they went on the markets. Several theories have been put forth as to why such companies struggle when they go public; their unpredictability, tax obligations and diverse interests, to name a few. According to Carlyle's senior team however, their main motive for joining the NASDAQ was to get the backing of several large institutional investors to power long term growth, an objective they believe has been achieved.

Carlyle's slow start was, surprisingly enough, mirrored later in the month by one of the most talked about public offerings of all time; Facebook. The ubiquitous site closed (also on the NASDAQ) at $38.23, equating to a $105 billion valuation. This May 18th close would have likely to have been lower than the open should the social network's bankers not have bought back stock to give it some buoyancy; a worrying sign of the dangers ahead. Things soon worsened and, as of month's end, Facebook are now 27% below their initial offering price. This flawed IPO has once again raised questions about how tech companies with little 'real' assets can be valued; many say Facebook was aggressively priced at over 100 times earnings, compared to 20 times for fellow online powerhouse Google. Many are saying that such a realist reaction from the market protects its stability from the speculation-driven volatility seen during the Dot Com Bubble of the late 90s. The danger remains for the company itself, however; though it has few credible rivals, the social network may soon be expected to produce earnings in line with its astronomical valuation or suffer further on the markets.