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IPO Comeback –Tales from New Issuers Daren ShawManaging Director, Investment Banking December 2, 2011
IPO Market Observations & Outlook After a strong first half, IPO markets have largely shut down Global uncertainty has severely impacted public markets IPO pricings were up 22% in the 1st Half 2011 from 1st Half 2010; 2nd Half 2011 has only seen 20 IPOs price through October versus 34 for the same period in 2010 Recent signs of renewed activity – Groupon, Angie’s List, Zynga Pent up demand from 2008-2009 was partially realized in 2010 with the highest yearly fundraising since 2007 Over 60% of all IPOs in 2010 were from PE or VC backed companies, reflecting the eagerness of financial sponsors to take advantage of an open market window There has been a trend in 2011 toward a low float IPO strategy – offering a smaller percent of the company at IPO in an attempt to create scarcity and increase demand for IPO shares Examples include LinkedIn (8.3%), Pandora (9.2%), and Groupon (4.7%) The 2011YTD median amount offered at IPO is 24.2% of post transaction market cap Technology, Telecom, and Financials make up nearly half of all IPOs in 2011 so far IPO backlog peaked in October 2011 with 207 companies in registration representing $38 billion in transaction value 2
Initial Public Offering Considerations Benefits Concerns Significant branding event Pressure to maintain growth and meet or Provides capital to fund revenue and exceed quarterly expectations earnings growth Disclosure of information / public scrutiny Creates liquidity opportunities for existing Time commitments (transaction related shareholders and on-going), particularly for Provides stock-based currency for management acquisitions Regulatory costs and compliance Facilitates access to capital markets for (Sarbanes-Oxley) future use Loss of control Significantly strengthens the balance sheet Ownership dilution Increases the Company’s reserves in the Financial focus competes with strategic event the market or economy deteriorates focus Stock options represent powerful Offering window may become more employee recruiting and retention tools selective or closed before offering is completed 4
Initial Public Offering Market Monthly Average IPOs Priced The market for initial public offerings was particularly robust throughout the 51 first half of 2011, but contracted in the third quarter due to uncertainty in the 45 global economy 36 Volatility in the public equity markets stemming from sovereign debt 33 crises, political impasse, and concerns about the global banking system was the 22 21 22 primary driver of lower activity 9 14 8 8 9 9 The market has been gaining traction in the fourth quarter, as recent coordinated 2 5 efforts by Eurozone countries and Central Banks have reduced a portion of the uncertainty Initial Public Offerings Priced: 2007 – 2011 YTD $19.7B IPO of Visa Initial Public Offering Volume ($ in Millions) $18.1B IPO of GM # of Initial Public OfferingsTransaction Volume ($ in Millions) # of Transactions Note: Excludes ADR, GDR, and Unit Offerings 5 Only includes U.S. based issuers. Excludes OTC Bulletin Board IPOs Source: Equidesk
Initial Public Offering Market IPO pricing appears to be returning to pre-Global Financial Crisis norms 71.1% of IPOs priced at or above their range in the first three quarters of 2011, compared to 71.6% in 2007 Markets were particularly cautious in late 2009 and 2010, as only 54.1% of IPOs priced at or above their range IPO aftermarket performance has been consistently strong since 2007, despite a wide range of fluctuating macroeconomic circumstances Average 30-day post offering returns have been positive in the last all quarters except Q2 2010 IPO Pricing Performance: 2007 – 2011 YTD IPO Aftermarket Returns: 2007 – 2011 YTD Below the Range In the Range Above the Range 1 Day Post Offering 30 Days Post Offering Offer to Current Price Note: Excludes ADR, GDR, and Unit Offerings Only includes U.S. based issuers Excludes OTC Bulletin Board IPOs 6 Source: Equidesk
Initial Public Offering Backlog IPO backlog in October 2011 reached levels unseen in both number of transactions and dollar volume since late 2007 Market volatility forced a number of companies that were planning IPOs to wait out the temporary downturn Backlog declined considerably in early November as IPO candidates withdrew; backlog should continue to decrease in the near term given the recent wave of November IPOs Initial Public Offering Backlog: Past Two YearsVolume ($ in Billions) Number of Transactions Note: Includes only U.S. IPOs in backlog 7 Source: Dealogic
Initial Public Offering ProfileInitial Public Offerings (IPOs): 2007 – 2011 YTDIPO Statistics 2007 2008 2009 2010 10/31/11 YTDNumber of IPOs 164 29 56 111 87Total Capital Raised $33.1 B $25.6 B $18.7 B $35.9 B $25.7 BMedian Deal Size $105.0 M $136.9 M $181.6 M $109.3 M $132.2 MMedian Market Capitalization $419.5 M $290.3 M $428.1 M $270.4 M $408.4 MDeals Less Than $100 M in Deal Size 78 13 13 46 36Median Deal Size As % of Market Cap 24.8% 31.0% 26.4% 31.4% 24.2%Number of IPOs Filed 243 103 109 203 201Median LTM Revenue $81.6 M $76.3 M $234.1 M $109.7 M $114.0 MMedian LTM EBITDA $11.8 M $13.9 M $47.0 M $16.8 M $17.4 M Note: Excludes ADR, GDR, and Unit Offerings Only includes U.S. based issuers Excludes OTC Bulletin Board IPOs 8 Source: Equidesk & Capital IQ
Initial Public Offering Profile Trends in the greater economy can be seen within the breakdown of companies conducting IPOs Recession resistant industries such as Industrials and Materials accounted for more offerings throughout the market downturn; Financials were impacted tremendously in 2009 compared to historical percentages Financials and Real Estate have accounted for a greater percentage of IPOs in 2011 when compared to historical averages Technology, Telecom and Financials make nearly half of all 2011YTD offerings Initial Public Offerings by Industry: 2007 – 2011 YTD Note: Excludes ADR, GDR, and Unit Offerings Only includes U.S. based issuers Excludes OTC Bulletin Board IPOs 9 Source: Equidesk
Initial Public Offerings – Why Times Have Changed Fundamental changes in the investment brokerage industry Fewer full service firms, increased difficulty getting research coverage and market making Narrowing of commissions on trades; research analyst pay de-linked from investment banking Litigation and overregulation forcing retail brokers to become asset gatherers vs. stock pickers Sarbanes Oxley’s effect on the IPO decision The proportion of the global IPO market captured by U.S. markets was 11.4% during the 1st half of 2011 - a decrease from 14.2% in 2010, 16.9% in 2009, and much less than the 1996–2006 average of 28.7%. Increased costs of being a publicly traded company (initial cost between $2 - $3 million, ongoing cost of $1+ million) Lack of demand for companies with less than $200 million of market capitalization Institutional demand and underwriter appetite Increased scrutiny surrounding public companies and corporate governance Corporate scandals such as options backdating, fraud, and insider trading have significantly increased the spotlight on corporate executives Intense pressure on companies to meet or beat quarterly revenue and earnings estimates Companies can no longer set up “cookie jar” accounts to smooth earnings 10
Daren Shaw – Managing Director Daren Shaw is a Managing Director for D.A. Davidson & Co. D.A. Davidson is a full-service investment banking firm with approximately 1,100 employees, $30 billion of capital under management and operations throughout the U.S. Mr. Shaw has served on D.A. Davidson’s Senior Management Committee and Board of Directors, and previously served as the Head of Investment Banking at D.A. Davidson. He has served as the lead investment banker in a wide variety of transactions including public stock offerings, private placements, and mergers and acquisitions. Prior to joining D.A. Davidson, Mr. Shaw was a Managing Director at Pacific Crest Securities, a regional investment banking firm headquartered in Portland, Oregon. Mr. Shaw is a former member of the NASD’s business conduct committee for the Western region. Previously, Mr. Shaw was a manager in the private business advisory group at KPMG, where he performed audit services and corporate advisory work. Mr. Shaw graduated with a B.A. from Utah State University. Contact: (801) 333-3123 email@example.com 11