Forget Facebook: How IPOs Have Really Done This Year
The headline-grabbing flameouts of big names such as Facebook and Manchester United in the initial public offering market have obscured an otherwise solid performance this year of much smaller companies.
While the amount of companies going public has declined in 2012, the total is within nine deals of the 2011 pace, according to data tracker Ipreo Capital Markets
The real story, though, has been in performance: IPOs raising less than $500 million have returned about 14 percent year to date worldwide, while those that have raised between $500 million and $1 billion have gained just 2 percent and companies raising more than $1 billion were ahead 7 percent through July, Dealogic said.
The lesson for investors: While it may feel sexier to buy the latest most-buzzed-about IPO, the real values usually lie in the smaller firms flying under the radar.
"It's definitely company-by-company," Keith Springer, president of Springer Financial Advisory in Sacramento, says of the way investors should approach IPOs. "It depends on the product, on what they're doing. You have to be careful with IPOs. Are they going public because this is their peak value?"
Facebook's $16 billion IPOin May serves as the poster child for a company that may have attained its maximum value on the day of its offering.
Since the release, investors who bought in at the top $38 offering price have lost more than half their investment, while the company itself has lost market cap but raised the cash it was looking for in the offering.
Widely followed soccer club Manchester United also came to market with a hyped IPO worth $234 million. Those who bought in at $14 a share have seen their investments dwindle as well, though nowhere near the Facebook freefall.
By contrast, Globus Medical generated far less notice and raised a comparatively miniscule $115 million. But its stock price has climbed 34 percent since its March 28 debut.
Similarly, Performant Financial debuted on Aug. 10 and raised $81 million, and its shares have jumped 23 percent since.
"I tend to look at them and evaluate them on their own merit, rather than hope to get the first-day pops or see if I can get in there ahead of everybody else," says Michael Cohn, chief market strategist at Atlantis Asset Management in New York. "There haven't been many great pops this year."
Perhaps as a consequence of the noteworthy flops, large IPO issuance has tumbled to three-year lows in 2012.
There have been just six offerings that have raised more than $1 billion this year, down from 17 at the same poin in 2011, according to Dealogic. The Facebook offering has pushed the U.S. to the front of the pack for large IPO offerings in monery terms, but it is Japan that has provided one of the biggest surprises this year on the global IPO market, with a four-year high of 25 deals so far in 2012.
And a broader look at the market shows that IPOs overall have performed well for the year.
An exchange-traded fund that tracks the industry, the First Trust US IPO Index Fund , is up more than 17 percent year-to-date. The lightly traded fund tracks the IPOX-100, which is comprised of companies that have gone public in the past several years. Visa is its largest holding.
While August marked the 14th consecutive month that IPO proceeds were down from the previous year, the space can still net solid returns.
"The demand will be there for months and years to come," Springer says. "I don't see many losses in IPOs down the road if the company and product is good."