The market for US initial public offerings is set to wrap up the second quarter with some wind in its sails after spending the past three months adrift with no clear direction or momentum. In a positive sign for the IPO market just one week before the quarter ends, KKR Financial Corp's IPO raised a higher-than-expected $800 million, making it the second-largest deal of the quarter.
Shares of the real estate investment trust, whose manager is an affiliate of well-known private equity firm Kohlberg Kravis Roberts & Co, rose in their market debut.
"Any time you get a deal of this size that comes out and opens with a premium" it is good news for the IPO market, said Sal Morreale, who tracks IPOs for Cantor Fitzgerald.
Whether the momentum will continue as the IPO market enters the summer months is questionable.
"I think we'll largely see more of the same with moderate deal volume and not a lot of sexy deals coming to market," said Jay Ritter, an IPO expert and professor at the University of Florida.
The KKR Financial IPO, which raised more money than expected, was an anomaly in a quarter where more than 40 percent of IPOs have priced below estimates, according to data provider Dealogic.
The quarter's offerings have raised roughly $6.2 billion so far - down 36 percent from a year ago and 43 percent from the first quarter, according to Dealogic.
Ritter said that some of the quarter's lethargy can be traced back to the Nasdaq.
"The Nasdaq Composite Index is a leading indicator of where the IPO market is heading, and the low volume of IPOs in the second quarter is largely attributed to the decline in the Nasdaq during the first quarter," he said.
Some of the poor performance can also be chalked up to investors showing a clear distaste for IPOs designed to pay off company insiders and investors.
Deals that came under pressure for that reason included two of the three largest deals of the quarter - Lazard Ltd and Warner Music Group Corp It also led to the cancellation of a Boise Cascade Co IPO.
In a twist, the IPOs that made a splash often came from smaller companies taken public by banks that do not typically make the top rankings in the league tables.
One of the quarter's best performing deals was the $65 million IPO of action sports specialty retailer Zumiez Inc, led by Wachovia Securities and Piper Jaffray.
It was one of just four IPOs this quarter to price above estimates, according to Dealogic, and its shares are now up close to 70 percent from their IPO price.
Tom Taulli, co-founder of IPO tracking firm Current-Offerings, said it is the smaller deals that appeal to everyday investors that are performing well.
One IPO that should continue that trend is the upcoming offering of Volcom Inc, which designs clothing for skateboarders, snowboarders and surfers. Taulli said numerous friends have asked him how they can buy shares of the company, expected to price its $75 million IPO next week.
Trevor Ganshaw, head of equity capital markets at Banc of America Securities, said that as the market enters the third and fourth quarters, he expects investors are going to be increasingly focused on growth stocks.
"Growth companies have generally been better received in the IPO market and, for the most part, have traded well," he said.
Taulli said this summer is lacking a blockbuster deal like last year to give it some direction.
"At least last summer we had Google," he said, which went public in a closely watch $2 billion IPO last August.
Ganshaw said the IPO calendar remains busy with interest rates remaining low, fund flows coming back a little bit and generally positive corporate earnings.
"It's an environment that should facilitate a reasonably strong calendar - not record or near-record volume - but a reasonably robust calendar," he said.
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