In volatile year, frenzy of IPO ac­tiv­ity be­gins

Who’s go­ing pub­lic? Who’s not? Ap­proach­ing ‘tsunami’ of debt may de­cide de­buts, an­a­lyst says

Austin American-Statesman - - BUSINESS - By Michael Tsang and Lee Spears

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.”

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