U.S. initial public offerings, which dried up two months ago, are now outperforming IPOs from Brazil and closing in on China.
U.S. companies that sold shares this year have advanced 4.1 percentage points more in their first month of trading than Brazilian IPOs, and are trailing Chinese IPOs in Hong Kong by 4.5 points, according to data compiled by Bloomberg. Software producers DynaVox Inc. and Mitel Networks Corp. and five other companies will seek to raise $1.1 billion today, the most U.S. deals since the credit crisis began, the data show.
American offerings are luring investors even as Brazil’s economy expands almost twice as fast and China grows at more than three times the pace of the U.S. They’re buying after the Standard & Poor’s 500 Index rallied to an 18-month high, $8 trillion in government support and interest rates near zero percent helped revive demand and 82 percent of S&P 500 companies posted profit that beat analysts’ estimates.
“There was a dramatic change in perception,” said Thomas Caldwell, founder of Toronto-based Caldwell Financial Ltd., which oversees about $1 billion. The U.S. has “the critical components of a bull economy. So you’re naturally going to have a good IPO market because the opportunities to invest are exceptional,” he said.
While demand is increasing for initial sales in the U.S., emerging markets led by Brazil, Russia, India and China may account for more than half of the $200 billion that IPOs are forecast to raise this year as growth in developing nations accelerates, according to London-based Barclays Plc.
Brazilian President Luiz Inacio Lula da Silva said in October that his country will become the fifth-biggest economy in the world by 2016, leapfrogging France, the U.K. and Italy. China, the third-largest economy, grew 11.9 percent in the first quarter, the fastest pace in almost three years, according to the statistics bureau in Beijing.
“I wouldn’t draw too big a conclusion and say the charm and the fundamentals of emerging markets have deteriorated,” said William Fries, a fund manager at Santa Fe, New Mexico-based Thornburg Investment Management, which oversees about $57 billion. “There’s still recognition that activity in some emerging markets, particularly places like Brazil and China, is probably going to be faster than in the U.S.”
The last time seven companies in the U.S. sold shares on one day was Dec. 14, 2006, while the eight offerings for this week would be the most since December 2007, according to data compiled by Bloomberg. That’s three months before a run on New York-based Bear Stearns Cos. helped ignite the credit crisis that spurred the biggest drought in U.S. IPOs since 1995.
Excel Trust, Codexis
Along with DynaVox of Pittsburgh and Ottawa, Ontario-based Mitel, today’s offerings include San Diego-based Excel Trust Inc.; Global Geophysical Services Inc. of Missouri City, Texas; Alimera Sciences Inc. in Alpharetta, Georgia; Redwood City, California-based Codexis Inc. and SPS Commerce Inc. of Minneapolis. Film Department Holdings Inc. in West Hollywood, California, may also sell shares this week, Bloomberg data show.
U.S. IPOs had stumbled at the start of the year as the first 14 sales were cut by 22 percent on average and no deals were completed by American companies between Feb. 10 and March 1, the data show. Nine of the last 10 offerings have priced within or above the range sought by underwriters, as the S&P 500 reached its highest since the collapse of New York-based Lehman Brothers Holdings Inc. in September 2008.
For the year, American IPOs have risen 6.3 percent on average in the first month of trading, beating gains in the S&P 500 by 3.1 percentage points, Bloomberg data show.
That exceeds the performance of IPOs in Brazil, which have posted an average advance of 2.2 percent and outpaced the country’s Bovespa index by 0.4 percentage points.
OSX Brasil SA, the nation’s largest IPO this year, has fallen 24 percent since its $1.4 billion offering in March. The Rio de Janeiro-based oil-services and shipbuilding company controlled by billionaire Eike Batista cut its IPO after failing to lure enough investors to a company with no revenue or profits for its planned $5.5 billion offering.
The average IPO by Chinese companies listing in Hong Kong rose 10.7 percent, outperforming the broader market by 5.7 points in the first month of trading.
United Co. Rusal, 48 percent owned by billionaire Oleg Deripaska, tumbled as much as 30 percent and is now down 9.8 percent since raising $2.24 billion in January in the first Russian IPO in Hong Kong. The Hang Seng Index has gained 7.5 percent over the same span.
The slowdown in emerging-market IPOs comes after companies in developing nations attracted more money from initial sales than industrialized countries last year for the first time ever.
Investors in developing-nation IPOs are also preparing for what may be two of the largest equity sales on record.
Petroleo Brasileiro SA, the Rio de Janeiro-based state-run oil producer, is seeking to sell as much as $25 billion in an offering to minority holders.
Agricultural Bank of China, the nation’s third-largest lender by assets, plans to attempt what could be the biggest IPO in history by July, three people with knowledge of the situation said this month. The Beijing-based lender will raise at least $30 billion, the Beijing Times said last week, citing Vice President Pan Gongsheng.
“There may be a little bit of a choke factor” in China, said Madelynn Matlock, the Cincinnati-based manager of the Huntington International Equity Fund at Huntington Asset Advisors, which oversees $13 billion. “In Brazil, there’s been several deals announced over the last several weeks and it may be creating a glut there as well.”
‘Aligning Right Now’
Today’s U.S. offerings come after companies from Financial Engines Inc. to MaxLinear Inc. convinced buyers to pay more than forecast for their shares.
Financial Engines, the Palo Alto, California-based investment adviser co-founded by Nobel laureate William Sharpe, has climbed 35 percent since its offering last month. Carlsbad, California-based MaxLinear, which designs semiconductors that let people watch television on mobile devices, has advanced 28 percent since its IPO on March 23. The gains have exceeded those in the S&P 500 by at least 25 percentage points.
“Everything is kind of aligning right now in the U.S.,” said Scott Billeadeau, who helps manage $19 billion at Fifth Third Asset Management in Minneapolis. “It’s a very good environment to bring a company with growth characteristics public.”