The glory days of IPOs -- initial public offerings -- are long gone but, much to the pleasure of investors and institutional bankers, the issuance of new stocks is starting to show signs of a resurgence.
In the past few weeks, a series of high-profile offerings have hit the street. The best performing stock in the group was clearly rue21, a chain of more than 500 retail stores that the company says "appeal to 11-to-17 years old who aspire to be 21."
The company operates one store in San Diego County in the Viejas Outlet Center in Alpine.
The offering was priced at $19 a share on Friday and the stock immediately traded higher, closing the session at $24.30, a gain of $5.30 in its first day of trading.
Also hitting the street on Friday was Dollar General, the largest discount retailer with more than 8,700 outlets in 35 states. It does not have any stores in California.
The Dollar General offering was priced at $19 a share and closed at $22.73.
Two IPOs in one day is certainly a rare event. So far in 2009 there have been 49 IPOs, well above the 21 new issues last year. Compare that with 1996 when a record 675 companies went public.
"While the IPO market has taken the first steps toward healing, a glimpse into the growing pipeline reveals that the path to full recovery will be different than those that followed prior economic downturns. At least for the near term, it appears the IPO market will be dominated by opportunistic investment vehicles and businesses from the mid-decade buyout bubble," said Linda Killian, portfolio manager of the Renaissance Capital IPO Plus Fund.
Dollar General is a perfect example of the buyout bubble. The retailer was bought in March 2007 by Kohlberg Kravis & Roberts for $7.3 billion. The new stock offering raised $716 million. However, KKR retains control of about 86 percent of the company that was not included in the IPO.
Among the other companies that have come to the market recently were Vitamin Shoppe and Hyatt Hotels.
The hotel chain went public on Nov 5 at $25 a share and closed Friday at $28.98.
Vitamin Shoppe operates more than 400 health stores across the country, including four in San Diego County. Its IPO was priced on Oct. 28 at $17 a share and has moved steadily higher since then, closing Friday at $19.94.
The company reported last week that same store sales rose by 4.4 percent in the third quarter. CEO Rick Markee said, "We are also very satisfied with the completion of our IPO and believe it will contribute to the flexibility of our capital structure as we focus on continuing to grow our business."
The most identifiable local company to go public this year has been Bridgepoint Education. The San Diego-based postsecondary education service company has done well since it priced its IPO at $10.50 a share in April. The stock closed Friday at $16.02.
The success of the recent IPOs has been a pleasant surprise. Analysts suggest it show that the underwriters have been accurately pricing the offerings to represent fair market value. That is unlike to boom days of the late 1990s when stocks would soar, often 100 percent or more, on the first day of trading regardless of the offering price.
And, the flurry of activity seen recently could carry on through the end of the year and well into 2010.
"We expect the trends of rising IPO volume and proceeds to continue as we believe investors are gaining confidence in economic recovery and increasing their risk appetite," said Killian. She points out that 40 companies filed for IPOs in the third quarter compared with just 14 in the first two quarters of 2009.
"While deal flow will likely be driven by private equity and spin-offs throughout the next few months, filing activity for venture-backed companies has recently come back after almost two years in the wilderness and may start to contribute to deal flow early next year if not in the fourth quarter," added Killian.
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