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Caesars stands out in a busy pricing week with strong returns
Analyst IPO Market Commentary
This week saw 8 IPOs completed, the most deals priced since the week of December 12th (which itself was the busiest week of 2011) and the returns left investors happy. Despite significant pricing pressure (only two managed to price at the midpoint; the rest were lower), all but one of the deals were completed, with an average first day return of 19%. Performance was especially positive in light of the prior week, when three companies postponed and three of five traded down on the first day. Instead, the week was in keeping with the theme of 2012 so far; while almost every 2012 IPO has faced pricing pressure, the average stock has provided a healthy 15% return to date, and the
FTSE Renaissance US IPO Index
), which tracks a basket of IPOs from the past two years, is up 13% year-to-date, compared with 8% for the S&P 500.
Wednesday was a particularly busy day for IPO debuts, as five companies (the most on a single day since January 2011)
) was the top performer by far, gaining 71%. The casino giant raised $16 million by offering 1.8 million shares at the $9 midpoint. The deal was strikingly small: only 1.4% of shares outstanding were offered as the deal was structured to provide liquidity to insiders, particularly troubled hedge fund Paulson & Co., none of whose shares are locked up. Such a small float can create volatility, and the supply-demand dynamic seems to have outweighed our concerns about leverage (11x pro forma Debt/LTM EBITDA), declines in revenue and the uncertainty around online gaming; the first-day volume was 11.6 million shares, over six times the number sold in the offering. Additionally, the high leverage means that multiple expansion/contraction will result in huge moves to the stock; the stock's 71% gain resulted in the 2012 EV/EBITDA multiple only increasing from 9.1x to 9.5x.
The next biggest winner was offshore IT services provider
), the lone technology company to price this week. It posted an impressive 17% gain after cutting its deal size by 43%. The company raised $72 million by offering 6 million shares at $12, down 29% from the $17 midpoint. Whereas more than
half of technology companies priced up in 2011
, only one of four, Guidewire (
), has done so in 2012. What has not changed is the trend of positive first day returns: After EPAM's gain, the 1Q12 becomes the seventh straight quarter in which the average technology company has gained at least 15% in its debut. Overall, tech IPOs since the 4Q12 have gained 41% to date.
), which develops treatments for Crohn's disease and rheumatoid arthritis with Glaxo, became the third biotech, after Verastem (
) and Cempra (
), to trade up, gaining 10% in its first day. It raised $45 million by offering 4.5 million shares at $10, well below the range of $14 to $16. ChemoCentryx continues a trend from 2011, when only one of eight biotechs priced above the midpoint (compared to 40% of all 2011 deals). That group has produced an average return of 7% to date.
), a Midwestern supermarket chain with 158 stores, gained 5.9% after decreasing its deal size. It raised $163 million by offering 19.2 million shares at $8.50. The original terms were 18.2 million shares at $10 to $12, for a deal size of $200 million.
Cementos Pacasmayo SAA
), a Peruvian cement producer, raised $230 million by offering 20 million ADRs at $11.50, the low end of the range. The stock, which already traded on the Lima Stock Exchange, was the only one of Wednesday's crop to fall after its debut, down 3.7% after its first day of trading.
Thursday saw only one IPO after Ceres (NASDAQ:
) pushed back its offering to next week. However,
), which operates a leading institutional foreign exchange trading platform, continued Wednesday's theme by pricing below the range and still trading up. The company raised $62 million by offering 5.2 million shares at $10, below the range of $13.50 to $15.50, and the stock was up 14% after it started trading yesterday.
Last night, two more deals priced. Waste containment company
) priced at the $9 midpoint and raised $63 million by offering 7.0 million shares. GSE had initially planned to price in December with a deal size of $126 million.
), which enables cable TV firms to offer consumers online content and services, raised $34 million by pricing its 6.8 million share IPO at $5. Synacor had planned to raise twice as much before cutting its price range in half in a filing yesterday.
Keywords / Tickers: IPOPricings, CZR, CPAC, CERE, CCXI, EPAM, FX, GSE, RNDY, SYNC
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