The IPO Week in Review - 10/18

8/22/11 – The 2011 IPO market has shown considerable strength in terms of number of deals and aggregate proceeds generated by those offerings. However, it is currently being tested by market volatility brought on by concerns about the strength of the global economy and the downgrade of U.S. long-term debt by Standard & Poor's. One place where the instability is already showing its effects is in the aftermarket performance of 2011’s IPOs.

Of the ten 2011 IPOs that had risen the most in the aftermarket as of June 30^th, only LinkedIn has so far managed to weather the recent turmoil intact (the shares were up 100.2% as of June 30^th, and are now up 101.1%). Other stocks have dropped in value, some significantly, in the past weeks. This article examines the impact of market turbulence on recent aftermarket performance, and generally how IPOs have performed this year beginning with their first trading day.

First Day Pricing – In general, IPOs completed between January 1^stand August 9^th have started off well, with 61 new issues having gained in value on their first trading day. The top first-day gainer in 2011 is Qihoo 360 Technology, whose shares jumped 134.5% on their first trading day. LinkedIn is the only other IPO so far to have more than doubled in value on its first day. The company enjoyed a 109.4% rise in its May 19^th debut. The next largest first-day jump was Zillow’s 78.9% increase in July.

Recent Changes In Value – At the halfway point of 2011, Endocyte had enjoyed the best aftermarket performance of any stock that debuted between January 1^st and June 30^th of this year. The shares of the biopharmaceutical company closed June 30^th up 138.7% from their initial offering price. As of August 15^th, Endocyte’s shares were still up 98.8% from the initial price, but that represents a 40% decline in value in recent weeks. Similarly, ServiceSource International dropped from a 122.2% gain to a 72.9% gain in the past five weeks.

Market volatility also has cost Pacira Pharmaceuticals and Sagent Pharmaceuticals some of their 2011 aftermarket gains. Pacira traded 30% over its IPO price as of August 15^th, compared to +71.4% at June 30^th. Sagent’s 25.3% gain is off significantly from the nearly 70% rise it had enjoyed through the end of June.

It is worth noting that while LinkedIn bucked the trend by gaining value between June 30^th and August 15^th, data memory storage provider Fusion-io registered only a small decline in value in the face of the market turmoil. The company went public on June 8^th and its shares had risen 58.4% by the end of that month. Five weeks later, the shares were still trading 54.5% above their initial $19 price tag.

IPO Issuer	IPO First Trade Date	IPO Offer Price	% Change as of 6/30/11	% Change as of 8/15/11
Endocyte	2/4/11	$6	138.7%	98.8%
ServiceSource International	3/25/11	$10	122.2%	72.9%
LinkedIn	5/19/11	$45	100.2%	101.1%
Pacira Pharmaceuticals	2/3/11	$7	71.4%	30.0%
Sagent Pharmaceuticals	4/20/11	$16	68.6%	25.3%
MedQuist Holdings	2/4/11	$8	61.5%	28.2%
Fusion-io	6/9/11	$19	58.4%	54.5%
Responsys	4/21/11	$12	47.8%	26.9%
RPX	5/4/11	$19	47.5%	25.6%
HomeAway	6/29/11	$27	43.3%	37.1%

SIC Code Class Performance – Taking a broader look at how IPOs have performed, we broke down the year’s offerings by SIC Code. SIC 7380, Miscellaneous Business Services, leads all SIC classifications in 2011 with a 72.9% increase. That number reflects the performance of only one stock, ServiceSource International, whose shares began trading on March 25^th. Each of the top seven SIC Codes reflects the value of only one IPO.

If we look only at SIC Codes with two or more IPOs in 2011, then computer programming companies (SIC 7371) currently rank atop the list. The two new issues in that industry are up a cumulative 43.5% through August 15^th. Six computer programming and data processing companies have gone public this year, and their shares have gained a cumulative 32.8%.

Excluding Blank Checks companies, real estate investment trusts (SIC 6798) have the highest number of IPOs through August 15^th, but the eight IPOs in that industry have dropped an aggregate of 11.2% in aftermarket trading. Prepackaged software companies (SIC 7372), the next in line with seven new issues, have fared a little better, gaining 5.3% so far this year.

Of those industries with two or more IPOs in 2011, the worst performer as of August 15^th was Semiconductors and Related Devices (SIC 3674). The five IPOs in that industry have fallen a cumulative 31% from their initial offering prices. The two General Medical and Surgical Hospital (SIC 8062) IPOs of 2011 are off 23% so far. Four Crude Petroleum and Natural Gas (SIC 1311) companies have debuted this year, and as a group they are down 5.1% in aftermarket trading.

Rank	SIC Code	Total No. IPOs	Largest % Increase	Largest % Decrease	% Change of Aggr Value of 1 Share of Each IPO
1	7380 Services-Misc. Business Services	1	72.9%	—	72.9%
2	3572 Computer Storage Devices	1	54.5%	—	54.5%
3	5499 Misc. Food Stores	1	54.4%	—	54.4%
4	5632 Women’s Accessory and Specialty Stores	1	53.5%	—	53.5%
5	5400 Retail-Food Stores	1	51.3%	—	51.3%
6	2873 Nitrogenous Fertilizers	1	49.7%	—	49.7%
7	5812 Retail-Eating Places	1	44.9%	—	44.9%
8	7371 Services-Computer Programming Services	2	58.9%	—	43.5%
9	5810 Retail-Eating & Drinking Places	1	40.2%	—	40.2%
10	7370 Services-Computer Programming, Data Processing, Etc.	6	101.1%	-60.0%	32.8%

Lead Manager Aftermarket Performance – A comparison of the performance of first lead managers—we added up the offer price of each IPO for all offerings in the period of a lead manager and compared that to the current trading close—places Leerink Swann in the lead. Its one deal (Endocyte) has risen 98.8% as of August 15^th. If we limit our analysis to those lead managers that have handled at least two IPOs in 2011, then Itau BBA USA Securities comes out on top with an aggregate gain of 24.1% for its two offerings. Lazard, which also has led or co-led two IPOs this year, is second with an average 15.9% gain in the value of the shares.

Morgan Stanley has been busy in 2011, serving as lead manager or co-lead on 32 offerings. The value of those shares has risen 14.4% through August 15^th, placing the underwriter third among those firms that have handled more than one IPO. Goldman Sachs has served as lead manager 22 times so far this year, and the value of those companies’ shares is up a cumulative 12%. JPMorgan and BofA Merrill Lynch have turned in a nearly identical performance through mid-August. Both managers have led or co-led 24 IPOs. The change in value of JPMorgan’s deals is 9.9% while BofA Merrill Lynch’s are up 9.2%.

Rank	IPO Lead Manager	Total No. IPOs	Largest Single IPO % Increase	Largest Single IPO % Decrease	% Change of Aggr Value of 1 Share of Each IPO
1	Leerink Swann	1	98.8%	—	98.8%
2	Itau BBA USA Securities	2	44.9%	-8.2%	24.1%
3	Lazard	2	28.2%	—	15.9%
4	Morgan Stanley	32	101.1%	-44.1%	14.4%
5	Goldman Sachs	22	54.5%	-44.1%	12.0%
6	JPMorgan	24	101.1%	-32.4%	9.9%
7	BofA Merrill Lynch	24	101.1%	-37.2%	9.2%
8	RBC Capital Markets	5	98.8%	-10.2%	9.2%
9	Raymond James	3	20.7%	-18.5%	2.7%
10	Jefferies	6	25.3%	-43.1%	1.9%

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