After weeks of near-dormancy, the IPO market is back in action with U.S. issuers bringing forward a slew of new deals, and setting the month on track to become the second busiest July in a decade.
Two new listings, real estate website Zillow and personalized headphone vendor Skullcandy, made their debut on the Nasdaq today after pricing their shares at higher than expected prices late Tuesday.
Zillow shares shot up 79 percent to close at $35.77 on their debut, after being as high as $60 intraday. Skullcandy ended unchanged after being as high as $23.40. Both stocks priced at $20 a share.
Investors are also anticipating Dunkin Brands IPO later this month. The Canton, MA-based company, which owns the Dunkin' Donuts and Baskin-Robbins brands, plans to raise $378 million by offering 22.3 million shares at a price range of $16 to $18.
So far, there are 18 scheduled IPOs on the July calendar, which historically has been a quiet month, according to Renaissance Capital. That compares to just nine deals in June, when a large number of companies withdrew their public offerings due to market volatility.
“The market seems to be embracing its moving forward mentality,” says David Menlow, president of IPOfinancial.com. “With many deals pushed back because of uncertainty, the pressure is building up to have those deals done.”
Continuing demand for capital and an assumption that there will be no debt-ceiling crisis are helping drive the increase in IPO activity believes Menlow. He sees the July surge as a precursor to even stronger activity in the second half of 2011.
“There’s also the desire to get out the door ahead of having to include audited second quarter numbers,” says Paul Bard, research director at IPO research and management firm Renaissance Capital.
“Given where we are in the macro economic cycle, classic growth stories are resonating well with investors, particularly companies that are approaching new industries, have a product that is in high demand,” says Bard. Zillow and Skullcandy both hit the market’s sweet spot in their respective ways.
But the IPO market remains very deal specific. Despite Zillow’s strong pricing, for instance, other real estate deals slated for July, Apollo Residential Mortgage and Orchid Island, are unlikely to get a warm reception. “These deals may work well over time, but right now they are not enticing investors,” says Menlow.
IPO experts are also keeping an eye on women’s specialty retailer Francesca's that plans to raise $153 million, by offering 8.3 million shares at a price range of $17 to $19.
Operating in a highly competitive space, the Houston-based company has managed to establish a track record of strong same-store sales, booking 9.8 percent growth for the fiscal year ended January 2010, and 15.2 percent for the fiscal year ended January 2011. Some experts wonder if this impressive growth rate is sustainable.
One curious feature of Francesca’s deal is that six underwriters of the listing hold all of the company’s debt, says Menlow. “This might be a moment to pause for some investors.”
Francis Gaskins, president of research firm IPO Desktop, sees it as a potential red flag. “100 percent of the IPO proceeds will go to shareholders and underwriter affiliates. This is the most pure insider bailout we have seen in some time,” Gaskins said in his preview of Francesca’s offering.
And after a noticeable absence, Chinese IPOs are also poised to attempt a comeback with pricing of consumer internet platform Xunlei Limited later this week. The company stands to become the twelfth U.S. listed Chinese IPO this year, according to Renaissance Capital.
But don’t expect it to lead the pack, says Menlow. “It is not ready to take forefront with all that has transpired with Chinese stocks.”
As a group, Chinese IPOs raised $1.7 billion this year, but are down 13 percent on average from their offer prices, according to Renaissance Capital. As of Tuesday, eight of 11 Chinese IPOs are trading below their issue price.