Tech stocks: After LinkedIn, IPO boom likely
By: Karina Frayter, Markets Producer
Recent stock market volatility is unlikely to derail the recovery of the initial public offering (IPO) market, which boasts the biggest pipeline in 11 years, experts say.
鈥淭here are too many fundamentally high-quality companies in the pipeline鈥攚e haven鈥檛 seen this in years鈥攁nd any effects of equity market volatility will be short-lived鈥�, says Paul Bard, research director of IPO research and investment firm Renaissance Capital.
There are currently 175 companies waiting in the IPO pipeline, the largest amount since 2000, representing potential $40 billion in proceeds, according to Renaissance Capital. So far this year, 62 companies went public and 124 companies filed for an IPO, a 20 percent increase from last year.
Wednesday鈥檚 pricing of the at $45 is likely to spike activity in internet companies. The social networking site for professionals priced at the high end of the range, which was raised by 30 percent from its original level. The .
鈥淟inkedIn may be a tipping point for many that are watching on the sidelines鈥�, says Bard. 鈥淭his type of valuation may persuade many to take advantage of the momentum.鈥� But not everyone will be met with the same demand, Bard warns. 鈥淚nvestors are selective.鈥�
Peter Falvey, a Managing Director at Morgan Keegan, agrees: 鈥�(The) IPO market is very much a momentum market. LinkedIn should have positive impact on tech equity market鈥�.
鈥淐learly, there is a strong interest from investors in digital media and e-commerce companies like , Twitter, Groupon and Zynga, as well as a host of smaller, fast growing companies. Each of them will execute very well received IPOs,鈥� says Falvey.
The next big Internet IPO story will be Yandex, Russia's largest online search engine. It is set to raise $1.1 billion in a deal pricing next week.
鈥淵andex is a compelling offering鈥�, says Bard. 鈥淚t鈥檚 first direct opportunity for U.S. investors to play Russian internet market, and that can be a powerful driver of demand.鈥�
Investor demand for Yandex shares has reportedly been so high that the company may finish taking orders earlier than scheduled. The company is expected to trade on Nasdaq under the symbol YNDX.
Among other deals that are expected to happen as early as this summer is vacation-rental site HomeAway, which filed for an IPO earlier this year with hopes to sell as much as $230 million worth of shares, as well as online radio company and travel website Kayak.
But upcoming IPO offerings are not limited to Internet or tech stocks. 鈥淲e expect steady strong performance from companies in healthcare, energy, including renewable energy, and financial services鈥�, says Henri Leveque, US Capital Markets leader with PwC Transaction Services.
The activity is also global. Commodities giant made its debut in London Thursday, becoming the U.K.鈥檚 largest IPO ever.
According to Renaissance Capital, there will be a total of 20 deals priced in May, raising a total $8.1 billion. Freescale Semiconductor , a leader in embedded processing semiconductors, will price in the middle of next week with hopes to raise over $1 billion. Other IPOs scheduled to price before month end are Spirit Airlines, The Active Network, Lone Pine Resources, Sabre Industries, Nobao Renewable Energy, and Solazyme.
But while stock market volatility is not expected to stop the deal flow, it may put downward pressure on prices. 鈥淰olatility will most likely cause lower quality companies to be more flexible with their pricing鈥�, says Paul Bard of Renaissance Capital.
Peter Falvey of Morgan Keegan expects increased volatility in the equity market entering the summer, and 鈥渋f it lasts through the third quarter, we may see material impact on the IPO market.鈥�
The good news鈥攕o far this year, investors have been making money in IPOs. The average IPO has returned 9.3 percent from its offer price, according to Renaissance Capital. The aftermarket performance is flat at -0.4 percent, with underperforming Chinese companies dragging down the numbers.
鈥淭he IPO pipeline is as strong as it has been in years鈥�, says Falvey, 鈥減artially because the challenging IPO market in the last three years translates into a large supply of more mature companies that should do well after executing an IPO鈥�.
Henri Leveque of PwC notes that there鈥檚 a strong correlation between preparedness, solid business model and post IPO performance. 鈥淧reparedness is key. Companies that prepare diligently are higher on the performance spectrum.鈥�
