In volatile year, frenzy of IPO activity begins
Who’s going public? Who’s not? Approaching ‘tsunami’ of debt may decide debuts, analyst says
NEW YORK — U.S. companies are getting set for the biggest wave of initial public offerings since the most recent bull market — at the same time that IPOs are being canceled at the fastest pace since the collapse of Lehman Brothers Holdings Inc.
HCA Inc., Zipcar Inc. and 89 other companies filed with the Securities and Exchange Commission last quarter to sell $23.6 billion of shares, according to data compiled by Bloomberg News. The last time more companies announced such plans was in 2007. In the past three months, 50 IPOs globally were shelved, the most in six quarters.
Investors in U.S. IPOs have lost 7.2 percent this year as the Standard & Poor’s 500-stock index has fallen to an almost nine-month low. Leveraged-buyout firms, which spent $2 trillion on takeovers during the credit-market bubble, announced the biggest stock sales and accounted for at least 50 percent of the deals filed with the SEC from April through June.
“Beggars can’t be choosers, to a certain extent,” said Scott Billeadeau, who helps oversee $19 billion at Fifth Third Asset Management in Minneapolis. Leveraged-buyout firms are “going through their portfolios going, ‘What is something I can go monetize to get some equity out?’ ” he said.
The second quarter began with 17 companies completing initial sales in April, the most this year, as the S&P 500 rallied to a 19-month high. Metals USA Holdings Corp., owned by Leon Black’s New York-based Apollo Global Management LLC, and PAA Natural Gas Storage LP of Houston priced their IPOs above the forecast range.
Gains then evaporated on concern that the end of government stimulus and widening budget gaps from Greece to Spain will curb the global economic recovery. The S&P 500 fell as much as 15 percent from its 2010 high in April, while the MSCI World Index of 24 developed nations lost 16 percent.
Price declines led companies from Ron Burkle’s Atlanta-based Americold Realty Trust to Swire Properties Ltd. in Hong Kong to pull $13.2 billion of initial offerings last quarter. IPOs backed by leveraged-buyout firms, which take controlling stakes in companies and use borrowed money to finance most of the purchase, accounted for four of the five biggest sales announced in the U.S., data compiled by Bloomberg show.
“In volatile markets like this, sponsors want to be ready to launch to capitalize on what may be short windows of opportunity to get deals done,” said Pete Chapman, New York-based cohead of equity-capital markets for the Americas at Bank of America Corp.’s Merrill Lynch & Co. investment banking unit.
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Private-equity owners are using initial offerings to pay down debt and return money to investors after the collapse of New York-based Lehman in September 2008 halted dealmaking and froze credit markets. Distributions to clients last year decreased to the lowest since at least 2000, according to data compiled by London-based Preqin Ltd.
HCA, the hospital chain bought four years ago in a $33 billion leveraged buyout led by KKR & Co. and Boston-based Bain Capital, filed with the SEC in May to sell $4.6 billion of shares. The IPO would be the largest in the U.S. since Visa Inc. of San Francisco raised $19.7 billion in March 2008.
The hospital operator will get about 54 percent of the proceeds, which will be used to pay back some of its $25.7 billion in debt. HCA’s owners, who used borrowed money for more than 80 percent of the purchase price, will get the rest. HCA posted net income of $1.05 billion last year, 26 percent less than in 2005, the year before the Nashville, Tenn.-based company was taken private.
“The smart ones are trying to get ahead of the tsunami” of debt coming due, said David Weild, New York-based senior adviser at accounting firm Grant Thornton. “The unsettled economic outlook has created a real roller coaster for IPOs.”
Nielsen Holdings, the New York-based television-audience rating company owned by KKR and Blackstone Group, Carlyle Group and Thomas H. Lee Partners, filed last month to raise as much as $1.8 billion.
Toys R Us Inc., the toy-store chain acquired by KKR, Bain and Vornado Realty Trust of New York in 2005, said in May that it plans to raise $800 million. The retailer has $5 billion in long-term debt.
Companies supported by venture capital firms are also tapping equity markets.
Zipcar, a car-sharing company that rents vehicles by the hour, will seek $75 million in an IPO to reduce debt and expand its fleet, according to its SEC filing.
Although its sales have risen almost tenfold in the past five years, the Cambridge, Mass.based company hasn’t earned a profit since its founding in 2000 and expects to lose money this year. Zipcar is backed by Steve Case’s Washington-based Revolution and Benchmark Capital.
InvenSense Inc., which makes the motion sensors for Nintendo Co.’s Wii MotionPlus remote video-game controller, filed last week to raise $100 million. The company became profitable this fiscal year for the first time since at least 2005. Venture capital firms Artiman Ventures, Partech International in San Francisco and Sierra Ventures own a combined 54 percent stake.
“You go public whenever you can, because you don’t know when you’re going to be able to go public again,” said Steven Kaplan, professor of finance at the University of Chicago’s Booth School of Business. “They’re filing now with the hope that the economy or stock markets will hold or improve, and then they’ll be able to go public.”