The IPO Buzz: Blockbusters, Pops and Flops

This week’s calendar of 10 IPOs is expected to raise over $5.3 billion. That looks impressive. But looks can be deceiving. A caveat: The IPO market reaches a fork in the road Thursday morning. It is a showdown between buyers and sellers over two blockbuster offerings.

Here is the background: Today’s stock market, as measured by the major U.S. indexes, slipped into a correction on Aug. 24, 2015. That was when the indexes pulled back over 10 percent from their previous closing highs. And each index hit its 2015 closing low the following day.

The IPO calendar reacted as it always does under such stock market conditions. It, too, pulled back.

A Tough October

From mid-August to Friday’s close on Oct. 9, 13 IPOs were priced, according to the U.S. Securities and Exchange Commission filings. This excludes unit offerings. Those 13 deals raised $1.9 billion. Over the same period a year ago, 31 IPOs were priced. They raised $9.4 billion. This excludes Alibaba’s (BABA) $21.8 billion offering.

The October 2015 IPO calendar is clearly struggling.

To date, October’s calendar has priced 10 IPOs, and nine were reduced in size to meet limited investor demand.

Surprisingly, this week has 10 IPOs. Let’s deconstruct the calendar.

Four deals are carryovers from last week. That leaves six. Of those six IPOs, two are “blank check” offerings, another is a REIT, and one is a technology IPO looking to raise about $45 million.

A Pair of Blockbusters

Now we are down to two deals. Each of the two is a blockbuster offering expecting to raise well over a billion dollars apiece. And they have much more in common. Each is private equity-owned, each is a leader in its industry, each reported revenues in the billions of dollars, each reported losses in the hundreds of millions, and each is loaded with debt reaching into the billions. The two are: Albertsons Companies (ABS – proposed) and First Data (FDC – proposed).

Albertsons, one of the largest food and drug retailers in the United States, plans to price 65.3 million shares at $23 to $26 each on Wednesday evening to trade Thursday morning. The deal is expected to raise $1.6 billion. The company traces its origins back to 1926. It reported a 12-month net loss of $412 million on revenues of $57.9 billion and long-term debt of $12.2 billion, according to its prospectus.

First Data, the global technology leader in providing payment technology and services solutions, plans to price 160 million shares at $18 to $20 each on Wednesday evening to trade Thursday morning. The deal is expected to raise $3 billion. The company traces its origins back to 1989. It reported a 12-month net loss of $361 million on revenues of $11.2 billion and long-term borrowings of $20.7 billion, according to its prospectus.

The Pricing Game

Both are slated to start trading on the New York Stock Exchange Thursday morning. This is where the fork in the IPO road comes into play.

The Street hears that people are concerned about the pricing of both deals. The question: Who will win the tug of war between buyers and sellers?

The buyers are reportedly looking for lower offering prices to get opening-day pops. If not, the sellers will get higher offering prices and risk getting opening-day flops.

So far in October, the nod has been going to the buyers.

To repeat October’s IPO Scorecard: Ten IPOs were priced – nine below range – and the stock market is still in a correction. Nevertheless, there are favorable signs for the IPO market.

In past years, after a sharp selloff, the IPO market started to come to life about four to six weeks after the stock market reached its bottom. In 2015, the major U.S. stock indexes hit that bottom on Aug. 25 – so far. That was seven weeks ago and the indexes have bounced off those lows. In addition, there were more favorable signals.

Built for Speed

Last week’s SEC filing window was busy. Nine companied filed plans to go public looking to raise $671 million, and 10 companies filed amendments looking to raise $3 billion. The anxiously awaited Italian racing car manufacturer, Ferrari (RACE – proposed), was among those filing amendments.

Late Friday afternoon, Ferrari filed plans to offer 17.2 million shares at $48 to $52 each to raise $858 million, and the deal is already on next week’s IPO calendar. It is expected to be priced Tuesday evening, Oct. 20, to start trading Wednesday morning, Oct. 21, on the New York Stock Exchange.

At press time, there were three IPOs on next week’s calendar. But it is early – and anything can happen. Ferrari rolled onto next week’s calendar late Friday.

Stay tuned.

Disclosure: Neither the author nor anyone else on the staff has a position in any stocks mentioned, nor do we trade or invest in IPOs. The author and staff do not issue advice, recommendations or opinions.