Bankers priced 153 IPOS in 2010 (excluding 11 unit offerings), according to U.S. Securities and Exchange Commission filings:
- 103 Winners
- 50 Losers
- 0 Unchanged
- 27.3 percent average gain for all 153
- 16.9 percent gain for the Nasdaq Composite Index
(*) Also excluded were securities of foreign companies making their debuts in the U.S. capital markets, but their underlying stocks were traded in their national securities markets, and companies jumping from the OTCBB to a national stock exchange. These deals are secondary offerings. An investor can buy these stocks ahead of their “IPO” pricings on existing stock exchanges.
Birth of a Bull Market
The current IPO market was born in March 2009 when the NASDAQ Composite Index closed at a 17-month low. The Nasdaq Composite Index and the IPO Express have been on a run since then.
On March 3, 2009, the Nasdaq Composite, the barometer of the IPO market, closed at 1,268.64, DOWN 51.4 percent from 2,858.12, its previous closing high set on Oct. 31, 2007. And the IPO calendar dried up.
In March 2009, bankers priced one IPO, DOWN from 34 priced in October 2007.
On Dec. 22, 2010, the Nasdaq Composite closed at its recovery high at 2,671.48, UP 110.6 percent from its March 2009 low. And the IPO calendar responded accordingly.
Since March 2009, bankers have priced 225 IPOs over the last 21 months — with 65 companies going public during the last three months of 2010.
And one might say, this momentum could very well continue into 2011.
Naturally, everything depends upon the stock market. But there are favorable signs. Let’s consider the following:
At year’s end, on Dec. 31, 2010, the Nasdaq Composite was still DOWN 7.21 percent from its previous closing high of 2,859.12 set on Oct. 3, 2007, and DOWN 47.5 percent from its all-time closing high of 5,048.62 set on March 10, 2000.
Note: The busiest year in the IPO market before the March 2000 top was 1999, when 543 IPOs were priced.
Inside the IPO Pipeline
The lifeblood of the new-issues calendar was, is and always will be the IPO pipeline. Recently, it has been building. Consider this:
On Dec. 31, 2010, there were 154 companies in the IPO pipeline, which expected to raise about $32.9 billion.
On Dec. 31, 2009, there were 85 companies in the IPO pipeline, which expected to raise about $18.8 billion.
From those figures, the 2010 calendar produced 164 IPOs priced that raised about $39.8 billion.
In summary, the Nasdaq Composite is still below its recent closing high. On Jan. 1, 2011, the IPO pipeline was more than 80 percent greater that what it was this time last year.
Behind the “Dead-cat” Bounce
The thinking behind a “dead-cat” bounce is if you drop a dead cat high enough from a building, it’ll bounce when hitting the ground. For an IPO, if you cut a deal sharply enough, you’ll get an opening-day bounce.
But the numbers tell the story that cutting an IPO’s size (the number of shares, its price or both) doesn’t always work out this way.
The bankers had trouble getting the right price for IPOs in 2010. As a result, 45 percent of the deals were cut in size to get them out the door. And when they did, there wasn’t much of a pop in the aftermarket. Consider the following:
Sixty-nine of 153 IPOs were priced below their initial filing ranges. Their average opening-day gain was 0.19 percent.
Eighty-four IPOs were priced within and above their initial filing ranges. Their average opening-day gain was 18.0 percent.
Let’s take a few steps back into the past.
2000 through 2009 Stats
During this period, bankers priced 514 of 1,621 IPOs — or 31.7 percent -– below their initial filing ranges. Their average opening-day gain was 1.94 percent. (Remember, in comparison, the 2010 IPO pricings included 45 percent done below their initial filing ranges.)
For the years 2000 through 2009, bankers priced 1,107 of 1,621 IPOs within and above their initial filing ranges. Their average opening-day gain was 36.5 percent.
Naturally, there were some exceptions. Some of the deals that were cut turned out to be winners — big winners — but the odds are against those betting on a “dead-cat” bounce in the IPO market.
And besides, anyone who knows anything about cats prefers the ones inclined to purr.
Disclosure: Neither the author nor anyone else on the IPOScoop.com staff has a position in any stocks mentioned, nor do they trade or invest in IPOs. The author and IPOScoop.com staff do not issue advice, recommendations or opinions.