How to Get In on the IPO Frenzy

Last week saw more than 15 companies making their trading debut, making for the busiest bout of initial-public-offering activity since the end of 2006. This, moreover, caps off a very busy period of IPOs during the first several months the year: 77 IPOs have priced this year through April 10, more than double the 36 that priced for the same period last year. Still, as we're starting to see, not all of those recently priced offerings are popping. Cases in point: GrubHub (GRUB), The Rubicon Project (RUBI) and Coupons.com (COUP). There have been some real stinkers coming out of the gate, as well, among them King Digital (KING), MediWound (MDWD), Ignyta (RXDX), Concert Pharmaceuticals (CNCE) and Aquinox Pharmaceuticals (AQXP). There is some concern that IPO fatigue is beginning to set in. Nonetheless, more than 190 companies have registered to go public over the last several months, so it's looking as if the number of 2014 debuts will best last year's 222. That's if the window for IPOs remains open, and so far only two companies have withdrawn their registration statements in the last few months. Amid all this IPO activity, the big question is: Who benefits? Obviously it helps the companies going public, as they reap additional currency and capital with which they can make acquisitions. The preponderance of deals has also likely helped year-over-year trading-volume comparisons, and a quick check reveals that the first quarter did indeed see better volume vs. last year. That's good for NYSE Euronext (NYX) and Nasdaq OMX (NDAQ), as well as the sales and trading businesses at investment banks such as JPMorgan Chase (JPM), Morgan Stanley (MS), Goldman Sachs (GS) and others. Trading volume aside, investment banks also benefit from the pick-up in underwriting fees, assuming they've been involved in these transactions. Looking at the IPO leaderboard thus far in 2014, we find JPMorgan Chase, Goldman Sachs, Morgan Stanley and Credit Suisse (CS) in the top spots, with little exposure had by Bank of America (BAC), Piper Jaffray (PJC) and Stifel Financial (SF). Having worked inside several investment banks -- granted, all on the equity-research side -- I can say that the ability to correctly price an IPO helps win additional business down the line. Is it the sole decision factor? No, but if an investment bank has a string of deals that have broken down, it becomes that much more difficult to win the next lead-underwriting slot. Given the size of some of these transactions, such as that of GrubHub, IMS Health (IMS) and even La Quinta (LQ) -- and the corresponding fees they generate -- this can make all the difference to an investment bank's bottom line. So, as you can imagine, I'll be looking through press releases and conference-call transcripts to see how the IPO backlogs are shaping up at these financial firms. I tend to shy away from investing in IPOs, but for those looking to get in on it, my suggestion would be to consider the Renaissance IPO ETF (IPO), or to watch and see who continues to win the lead slots for the deals that are set to price. If it's anything like what we've seen of late, that will mean JPMorgan, Goldman Sachs and Morgan Stanley. Even though Credit Suisse makes the top cut, shares in two of its recent IPOs -- Borderfree (BRDR) and MediWound -- are down double-digits.

How to Get In on the IPO Frenzy

The flood doesn't look to slow down anytime soon -- and these top underwriters are set to benefit.

Columnist Conversation

Webinar Time After the Close

Wednesday Morning Fibocall for 7/15/2020

Tuesday Morning Fibocall for 7/14/2020

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.