The IPO Buzz: Sparklers Vs Shooting Stars

So that raises the question: Is the IPO market now in the midst of the summer doldrums?
The answer is, quite simply, “no.” The facts don’t support the “summer doldrums” myth when it comes to the IPO market. But before getting caught up in this, let’s take a closer look at what this week brings.
From the Gulf of Mexico
Oiltanking Partners, L.P. is a Houston-based limited partnership (LP). The partnership was formed to engage in the terminaling, storage and transportation of crude oil, refined petroleum products and liquefied petroleum gas.
For the 12 months ended March 31, 2011. Oiltanking Partners reported net income of $34.6 million on revenues of $168.7 million.
Oiltanking Partners plans to offer 10 million common units at $19 to $21 each to raise about $200 million. The IPO is expected to be priced on Wednesday evening, July 13, and to trade on Thursday morning on the New York Stock Exchange under the proposed symbol “OILT.” Joint-lead managers are: Citi, Barclays Capital, J.P. Morgan and Morgan Stanley.
(Note: Oiltanking Partners plans to pay a minimum quarterly cash distribution of $0.3375 per unit, or annually of $1.35 per unit for a yield of 6.75 percent.)
A Closer Look at LP Offerings
The 2011 calendar has priced a total of eight limited partnerships, according to the U.S. Securities and Exchange Commission filings. There is a message there.
Look for an increase in the number of shares being offered, look for the deal to be priced within filing range, look to see a modest opening-day gain and look for a longer-term aftermarket performance that ranks above average. Consider the following.
Six of the eight LP offerings done so far this year had an increase in the number of shares being offered and were priced within filing range.
What bankers did was to add more shares to the offerings. That left few aftermarket orders on the table. And without aftermarket orders, their average opening-day performance has underperformed the rest of the IPO market.
Nevertheless, there is some good news.
Measuring the LP deals from their opening-day closes to Friday, July 8th, their aftermarket performances were much better than the other IPOs. Here is the LP Scorecard:
Opening Day
  • The LPs had an average opening-day gain of 4.59 percent.
  • The rest of this year’s IPOs had an average opening-day gain of 16.7 percent.
Post Pricing
  • The LPs had an average gain of 9.48 percent from their opening-day closes through the closing bell on July 8.
  • The rest of this year’s IPOs had an average gain of 1.19 percent from their opening-day closes through the end of regular trading on July 8.
Fiction Versus Fact
Worth noting: A single deal on this week’s calendar isn’t a sign that the IPO traffic is rolling into the summer doldrums. Let’s look at the facts.
The summer months of June, July and August have, in past years, produced a higher percentage of the annual IPO traffic. That’s right -– a higher percentage of the annual IPO traffic.
The average for any three-month period is 25 percent. Over the last four decades from 1970 through 2010, the June, July and August periods had averaged over 27 percent of the annual traffic.
That’s about 10 percent above average.
Just the Facts, Please
From 1970 through 2010, 12,772 IPOs were priced and 3,495 came during the summer months. That’s an average of 27.4 percent.
And taking a look at the past decade, 2000 through 2009, a total of 1,812 IPOs were priced and 506 came during the summer months. That’s an average of 27.9 percent.
What probably confuses people is the IPO market usually slows down running into the July 4th break and then closes down in mid-August about two weeks before Labor Day.
What the facts show is that investment bankers make hay while the summer sun is shining.
After all, who do you think is working late to price those deals? It might be those baby-faced bankers in pinstripes and Gucci loafers you see in posh Manhattan bars late on a mid-summer week night. They’re clearly not there for the cheap “happy hour” drinks.  
As for next week, the IPO traffic picks up. Stay tuned.
Disclosure: Neither the author nor anyone else on the staff has a position in any stocks mentioned, nor do they trade or invest in IPOs. The author and staff do not issue advice, recommendations or opinions.