Last December, as 2010 came to a close, I wrote about how the market for initial public offerings (IPOs) had roared back to life after grinding to a halt during the 2008-09 global financial crisis. At the mid-way point of 2011, I am happy to report that the good times for IPOs continue. While I have written about Chinese IPOs, pending IPOs for social network companies Groupon and Facebook, as well as the Kinder Morgan, LinkedIn, and AIG IPOs, these are just the tip of the iceberg. According to consulting firm PricewaterhouseCoopers, 79 companies have gone public in the first six months of 2011, raising $24.3 billion. Compared to the first half of an already-vibrant 2010, this represents a 12.9 percent increase in deal volume and an even more impressive 159 percent increase in dollar value.
Furthermore, IPO activity appears to be accelerating. Herbert Fockler, a securities lawyer at Palo Alto, CA-based Wilson Sonsini Goodrich & Rosati, was quoted last month saying:
We have more IPOs going on in-house than we have at any time in the past ten years.
A June survey of investment bankers predicts that the second half of 2011 will be even more active than the first half. Historical precedent bears out this optimism: in seven of the past eight years (2008 is the exception), the second half of a calendar year has seen stronger IPO issuance on U.S. stock exchanges than the first half. So far, the second half of 2011 is holding true to form, with 18 companies scheduled to go public in July, which is double the nine companies that went public in June. Hopefully, IPO performance will improve in the second half: year to date, the Bloomberg IPO index is trailing the S&P 500 index by a whopping 8.44 percentage points (-1.85% vs. 6.59%):
Part of the problem with IPO performance in 2011 can be blamed on the accounting scandals surrounding Chinese IPOs. According to Renaissance Capital, Chinese IPOs are down 13 percent on average from their offering price and eight of 11 are trading below their offering price. Below is a list of recent IPOs that have hit U.S. markets and earned large first-day returns:
Recent IPOs with Big First-Day Pops
Notice how most haven’t performed well if you eliminate the first-day pop? This is something to keep in mind before investing in IPOs, since the average investor never can buy at the IPO offering price and must wait to purchase in the secondary market after the first-day pop.
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