IPO market flexes muscle raising $10B in 1 day
NEW YORK — There is growing evidence that the market for initial public offerings is rebounding after essentially disappearing at the height of the credit crisis as two new issues raised a combined $10 billion Wednesday.
However, analysts say the market’s re-emergence isn’t open to every company, and that only the strong can successfully launch stock sales right now.
“It’s still very much of a company-by-company situation,” said Francis Gaskins, president of IPOdesktop.com.
Both of Wednesday’s IPOs are well known and established companies in their industries. Verisk Analytics Inc. is the largest provider of data to the property and casualty insurance sector. Spain’s Banco Santander offered shares in its Brazilian unit, which is Brazil’s third-largest private sector bank behind Itau-Unibanco and Bradesco.
A broad stock market rally and a sense that investors are growing more comfortable with the equity market is prompting a range of companies, including biotechnology company Talecris Biotherapeutics Inc. and for-profit education company Education Management Inc., which both had IPOs last week, to go public.
The initial stock offering of Banco Santander Brasil SA fetched $8.1 billion, while Verisk garnered $1.9 billion from investors.
Together, that’s nearly double the $5.5 billion raised through IPOs in the third quarter of this year, and more than 10 times the $917 million amassed in 2008’s third quarter. There was just one IPO in the fourth quarter of 2008, Grand Canyon Education Inc., which raised $126 million.
The market for IPOs is still built on strong companies coming to market, said David Menlow, president of IPOfinancial.com.
Still, it’s undeniable that investors are hungry for new opportunities to invest as the global economy rebounds from the depths of recession and near stagnant credit markets in late 2008 and into early 2009. U.S. IPOs more than tripled in the third quarter compared with last year, according to business information provider Hoover’s. There were 17 new issues in the third quarter in the U.S. Another 30 filings were submitted to the Securities and Exchange Commission during the quarter for future offerings.
“The IPO market in the U.S. is akin to a wound up coil spring, and demand for capital continues to increase,” Menlow said.
Of the two new issues, Verisk was the more impressive performer Wednesday, its shares opening at $27 each, $5 above their IPO price and trading as high at $28.97. In afternoon trading, the stock rose $5.43, or 25 percent, to $27.43.
The Jersey City, N.J. company has benefited from the strength of its stockholders who launched the IPO. The company had been owned by a group of insurance companies, including American International Group Inc., Hartford Financial Services Group Inc., Travelers Cos. as well as Warren Buffett’s Berkshire Hathaway Inc.
“People have a tendency to feel a bit more comfortable if Berkshire Hathaway buys a stock or owns it,” said John Fitzgibbon of IPOScoop.com. Berkshire Hathaway did not sell any of its stake in the company as part of the initial offering.
IPOdesktop.com’s Gaskins said Verisk’s offering is a bit unusual because it is so strong and well known in its sector. Its consistent margins and profitability also make it attractive, Gaskins said.
Shares of Banco Santander Brasil, were not performing as well, falling in their first day of trading. American Depository Receipts trading in the U.S. dropped 35 cents, or 2.6 percent, to $13.05 in afternoon trading. The initial weakness in the U.S. trading is probably because the bank priced shares in Brazil, and didn’t offer the typical discount on what was essentially a secondary offering in the U.S. Santander also fully priced the stock, which allowed the bank to pocket profits on the sale, instead of selling at a discounted price that would have more likely led to a rise in share price Wednesday, analysts said.
Santander’s Brazilian shares slipped 2.6 percent in their trading debut on the Bovespa exchange in Sao Paulo, and stood at 22.87 reals ($12.99) each in late afternoon trading.
Banco Santander Brasil ADRs are trading on the New York Stock Exchange under the symbol “BSBR.” Verisk shares are trading on Nasdaq under the ticker “VRSK.”
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AP Business Writers Tali Arbel in New York and Alan Clendenning in Sao Paulo contributed to this report.
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