The US IPO market may be recovering, but with small deals rather than big, well-known companies such as Zynga. This week's initial public offering of wireless equipment maker Ubiquiti Networks Inc broke a 2-month drought in the US IPO market, suggesting that investors are again willing to risk their money on new issues.
The IPO raised just over $100 million - on the smaller side for US IPOs - at $15 a share, or $6 less than the midpoint of the estimated price range. The cautious approach appears to have worked: Ubiquiti shares rose 16.7 percent on their first day of trading on Nasdaq.
Whether this deal will pave the way for others is yet to be seen. Another small IPO, Zeltiq Aesthetics, is scheduled to price next week. It is expected to raise about $105 million. "Bankers are testing the water," said Jack Ablin, chief investment officer for Harris Private Bank with $60 billion under management.
Ablin said he, along with the rest of the market, would be watching to see how the deals do. Morningnotes.com founder and IPO analyst Ben Holmes agreed: "What we want to see is that the equity capital markets can function in this market and turn out product that people will buy," he said. "This is a smoke signal for the market." Europe's debt crisis and a weak US economic recovery have made it difficult to price new issues. Most companies have opted to delay going public until there is less volatility. Markets have been yo-yo-ing since a major sell-off in July, but have risen in recent days. The Standard & Poor's 500 index closed at 1,224.58 on Friday, up 13.9 percent from an intraday low on October 4.
A market turnaround and lower levels of volatility will be key to restarting the IPO market, experts said. Companies, their bankers, and investors are anxiously waiting for that to happen. Since the beginning of 2009, more than 700 companies looking to raise more than $40 billion have filed for US IPOs, according to Thomson Reuters data. Included in that backlog are large offerings from companies such as game developer Zynga and daily deals site Groupon.
But for now, at least, the deals remain small. Next Tuesday, Zeltiq Aesthetics and its owners are scheduled to sell 7 million shares at $14 to $16 each. The IPO would raise $105 million at the midpoint of the estimated price range. The company has developed a proprietary cooling technology that eliminates body fat by cooling it. The company says the technique, "CoolSculpting," is a good option for people who can't get rid of the fat by dieting or exercising. The company has never been profitable but received clearance from the US Food and Drug Administration in September 2010. The shares are expected to trade on Nasdaq under the symbol "ZLTQ".