The global initial public offering (IPO) market is the hottest it's been in two years, underscored by a pair of IPOs that this week alone raised nearly $10 billion.
In the United States, insurance risk manager Verisk Analytics Inc. pocketed $1.88 billion in its Tuesday IPO - the largest IPO take by a U.S. company since Visa Inc. (NYSE: V) took its business public in March 2008.
Shares for Verisk were sold by the company's existing shareholders and fetched for $22 apiece, higher than the expected $19 to $21 price range.
The second major IPO came from Banco Santander SA's (NYSE ADR: STD) Brazil unit, which yesterday (Wednesday) raised more than $8 billion (14.1 billion reais) in the country's largest IPO ever and the biggest of the year so far.
Verisk and Santander's offerings follow an unexpected one-week spree IPOs in September that raised $3.5 billion.
And more IPOs are scheduled in the near future.
One is Hyatt Hotels Corp., the major hotel and resorts operator and owner. Its 413 properties in 45 countries all bear a name that travelers have known since the 1960s. Despite the woes of the travel and hospitality industries, the Hyatt IPO is likely to draw strong interest from investors. Hyatt plans to raise about $1.15 billion.
Dole Food Co. Inc., taken private six years ago, will bring one of the world's most recognized food brands back to public hands. With more than 150 years of marketing insight and a major international presence, the Dole name is a strong draw.
On the retail front, Dollar General Corp., an operator of discount department stores, also filed for an IPO. Tennessee-based Dollar General is a staple of small towns across the nation. Dollar General's sales were up 13% in the second quarter, despite the recession's impact on consumer spending. And it hopes to raise about $750 million in its IPO.
Meanwhile, Poland's largest power utility company, state-owned PGE SA, is planning to raise $1.8 billion in an IPO next month, which would make it the Poland's biggest in five years.
In the M&A market, the elephant in the room is Kraft Foods Inc.'s (NYSE: KFT) unsolicited $16.7 billion takeover bid for Cadbury PLC (NYSE ADR: CBY). For Kraft, Cadbury's allure is its stable of established brand names - and a strong local identity in each of the markets it sells to.
A handful of M&A and major financing deals totaling $14 billion were also inked in September - namely Xerox Corp.'s (NYSE: XRX) plans to pay $6.4 billion for outsourcing specialist Affiliated Computer Services Inc. (NYSE: ACS).
Some of the same factors that jump-started the M&A market are now also helping to drive new IPOs, said Louis Basenese, an IPO and M&A specialist who's also editor of The Takeover Trader investing service.
"The best cure for an IPO lull is a bull market," Basenese told Money Morning. "Companies want to tap into the enthusiasm. And a 50% rebound [in U.S. stocks] certainly qualifies. So it's no wonder we're witnessing an uptick in recent weeks."
All this boils down to one thing: Large-scale economic activity is coming back online, and it is driving stock markets higher and increasing investor appetite for risk.
The initial public offerings may be steroids for stock market, but their broad implications are equally huge as the global economy crawls out of financial crisis.
Verisk first wanted to go public last year, the IPO market's worst year in three decades. Not only that, but its original IPO was planned a month before the collapse of Lehman Brothers Holdings Inc. (OTC: LEHMQ), which triggered a wave in losses for insurance companies.
The wait proved wise for two other reasons.
First, Verisk was able to improve its revenue and net income by 15% and 12%, respectively, in the first six months of 2009 compared to the same period a year earlier.
And second, its IPO occurred during a market with upward momentum and with higher-than-anticipated investor interest. Had Verisk went public last year, the pool of investors would have been shallower, and appetite for risk much lower. And then there would likely have been a considerable selloff when Lehman had gone under.
"The market is starting to open up," John Fitzgibbon of IPOScoop.com told The Associated Press. Verisk's performance "is a normal expectation when the IPO market arises from its ashes. It's the phoenix."
As far as Santander's IPO goes, it's just the first step in expanding its business from Spain - currently in its worst recession in 60 years - into Brazil, where the economy is expected to grow by 4.5% in 2010.
What's more, Brazil economic foundation is built on commodities - including agriculture, metals, and oil - that are expected to be in big demand over the next decade.
Santander has more than 2,000 branches in Brazil and hopes to open 600 more by 2013. And it plans on using 70% of the proceeds from the IPO to do so. Santander's expansion gives it more and better access to business and personal lending in red-hot Brazil.
In fact, by 2011, Santander may earn more money in Brazil (an estimated 4 billion euros) than its estimated profits in its homeland retail business (3.2 billion euros), according to Evolution Securities Ltd.
And its shareholders no doubt like the fact that Santander's IPO is on the Bovespa stock index, which has rocketed 67% this year.
"Santander is giving investors something they want, which is exposure to Brazil, a play on growth through demand for commodities and also the development of China," Inigo Lecubarri, a manager at Abaco Financials Fund in London, told Bloomberg News. "There's an element of Brazil being in fashion."
Most importantly, both of these IPOs are in the financial-services sector, which was considered poison less than a year ago. And if investors are willing to place $10 billion bets on the sector largely blamed for the global financial crisis, it's hard not to feel optimistic about how they'll respond to IPOs in hot sectors such as tech, biotech and commodities.
News and Related Story Links:
- The Wall Street Journal:
Hyatt Registers Share Sale of Up to $1.15 Billion in IPO
- The Associated Press:
Verisk Analytics IPO soars in trading debut
- Money Morning:
Kraft's Bid for Cadbury Not Sweet Enough