With less than a month left in 2011, U.S. IPO activity for the year is on pace to decline from 2010, as the volatility that swept the broad market in late summer gummed up the works for a few months.
According to Renaissance Capital, 114 companies have priced IPOs on U.S. exchanges so far in 2011, down 16.2 percent from last year, with the proceeds raised totaling $32.7 billion, a decline of 8.4 percent from last year.
This week, though, the calendar is fairly busy with at least three companies expected to price their offerings (check tickers when live): HomeStreet Bank , Peak Resorts, and WhiteSmoke. But, according to Francis Gaskins, the president of the IPO Desktop, investors are better off leaving these names off the shopping list.
Gaskins' assessment of HomeStreet is that it's a bank turnaround story that hasn't turned around.
He believes that without a successful IPO or private placement, the bank's future could be in doubt. The company is attempting to raise $165 million with an offering of 7.2 million shares seen pricing in a $22-$24 per share range.
"It's a case of go broke or go public," Gaskins said.
HomeStreet is a 90-year old financial company that has the distinction of having the oldest continuous relationship of all Fannie Mae sellers. It was the second bank approved by Fannie Mae in 1938. The bank is currently operating under a cease-and-desist order that prevents it from paying dividends.
Although it's complied with other required actions, such as hiring a new CEO, HomeStreet hasn't been able to achieve the capital ratio required. The offering is an attempt to satisfy capital ratio mandates with $108 million of the proceeds slated for bank capital.
On the plus side, HomeStreet's earnings jumped in its most recent quarter, but that was mostly because of mortgage servicing income, which can be unpredictable, and an accounting restatement — not an increase from operations.
"It seems prudent to pass on this IPO," Gaskins said.
Meantime, things are hot for Peak Resorts, but unfortunately that's a reference to the weather, not market buzz about the ski resort operator's IPO.
Luckily, Peak's presence is spread over three regions, the Midwest, Southeast and the Northeast. Unseasonably warm weather in the Northeast has been a bummer for Peak with facilities at Mt. Snow, Wildcat and Mad River all still unopened, and several other resorts not able to make snow yet.
The main objection from Gaskins though is that the offering looks expensive, valuing the company at 30 times earnings for the year ending April 2011. Peak is seeking to raise $85 million through the sale of 5 million shares at between $16 and $18 each. Peak is looking to sell 56 percent of the company, which is a relatively large amount.
Another concern for Gaskins is that Vail Resorts , another ski resort operator, has been struggling because of the economic environment with analysts expecting to see falling revenue. He noted that Vail is more of a property lodging company, while Peak's resorts are mostly day-tripper destinations. Peak is planning to use most of the proceeds to repay debt at Mt. Snow and Attitash.
WhiteSmoke is the smallest of these three offerings. The company's products, which are offered online, specialize in language translation and improving writing skills.
WhiteSmoke is looking to raise $17 million through the sale of 1.87 million shares at between $8 and $10 each. Gaskins expressed some concern that a company known for its grammar product had an S-1 filing that needed editing.
One positive development for WhiteSmoke is that it entered into a promotion and distribution agreement with Google for a free trial on Google Chrome. If this new sales and marketing relationship is successful, it would be a positive for the stock.
To read more about the outlook for IPOs in 2012, click here.
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