IPOs: Investors Desperate for Growth Pay Up
Initial public offerings: Investors desperate for growth pay up, but will it pan out.
A flurry of IPOs last night — with the most important one pricing tonight — has led some to say that the IPO market is showing signs of life.
Well, maybe. The good news: after a flurry of withdrawn deals and haircuts, today's crop of IPOs is looking better:
1) Two biotechnology deals both saw an increase in size. Intercept Pharmaceuticals (to be traded under the symbol "ICPT") priced 5 million shares at $15, the high end of $13 to $15 range. Some 4.3 million shares were expected to price. Kythera Pharmaceuticals priced 4.4 million shares at $16, also the high end of the $14 to $16 range. Four million shares were priced.
2) Real estate rollup Realogy priced 40 million shares at $27 each, top end of the $23 to $27 range, OPENED AT $32.85.
3) Commercial stock photography firm Shutterstock priced 4.5 million shares at $17, well above the $13-$15 price range, OPENED AT $22.50
So, are IPOs back? One day does not a trend make, but here's my take:
1) It's not surprising to see an increase in activity. The Facebook IPO in May was a disaster that shut down the market for months. People freshen up their filings after the summer, and there is a lot of product backed up on the calendar.
2) There is fairly healthy demand for one simple reason: Investors are desperate for growth in a low-growth environment, so if you can show even modest growth investors will chase it.
Take Realogy. This is a pretty simple story: The timing is right. It owns Century 21, Coldwell Banker, ERA, and Better Homes and Gardens RealEstate. This is a play on the real estate recovery at a time when all the other plays are looking a little long in the tooth.
Think about it: With the Federal Reserve telegraphing a third round of quantitative easing for months, how many hedge fund guys went out and bought Toll Brothers and Home Depot, driving prices to new highs? The Fed wants to flood the market with liquidity and lower the price of mortgages to stimulate a recovery in housing. Period.
Realogy is a new stock playing that same macro trend. Apollo Global Management, the owner of Realogy, knows that and is taking advantage of that.
But before you get too excited, be careful ... there's lots of rubble along the way for companies that don't look like they may have growth, or aren't in the right space, or in a space that can easily be categorized.
1) Garrison, a closed end fund, was postponed due to market conditions.
2) Yesterday two IPOs got substantial haircuts before coming to market: Amira Nature Foods, priced at $10, but the price talk was $13.50, closed at $9.58. Ambarella priced at $6, but the price talk was $9 to $11, closed at $6.06.
Last week LifeLock prices at $9, well below the price talk of $9.50 to $11.50, and closed today at $7.72.
Bottom line: The underwriters and the companies cut a lot of the deals to get them done and they started getting them out the door.
That, too, is healthy.
Finally, the big deal of the week is coming tonight: Workday (WDAY), pricing Thursday for Friday, brought to you by Dave Duffield, the founder of PeopleSoft . It has the magic word: cloud-based computing , this time for human resource needs (managing employee data, in plain English). They've even raised the price target: 22.75 million shares at $24 to $26, originally $21 to $24. Not profitable after eight years, but revenues are increasing fast.
—By CNBC's Bob Pisani; Follow Him on Twitter @BobPisani
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