DealZone

Après le Changyou IPO, le déluge?

April 3, 2009

umbrella2Well maybe not yet, but it was a good week for IPOs, with hopeful signs the market is beginning to awaken from its long slumber.

Thursday’s IPO by Chinese video games maker Changyou.com had a first day “pop” of 25 percent, the strongest debut in a year, making it the third IPO in a row, after Mead Johnson in February and Grand Canyon in November, to do well.

Two more companies, language instruction provider Rosetta Stone and Bridgepoint Education, apparently buoyed by all the advance buzz around Changyou, scheduled their IPOs for pricing in two weeks.

All well and good, but this burst of activity shows what the still-finicky market is interested in as much as what it still avoids: riskier, debt-laden firms that make up the bulk of IPOs in flush times.

In contrast, Rosetta Stone and Bridgepoint, fast growing and profitable, operate in an industry that is faring the recession relatively well, as evidenced by Grand Canyon’s solid performance since its IPO. And Changyou and Mead Johnson were money-making carve-outs of large companies, with well known brands.

Perhaps more instructively, both Changyou and Mead Johnson settled for IPO’s that could have been larger and more aggressively priced.

And as UBS’s Tom Fox, head of equity capital markets for the Americas, told Reuters last week, once more companies accept that lower valuations are now the rule of the day, more will try for an IPO

Analysts and bankers have been saying for months that the recovery will start with a trickle of deals by only the most solid companies, and smaller valuations, if the overall market starts to recover. Judging by that scenario, it sounds like the rebound is underway, but it’s early days yet.
(PHOTO: Vivek Prakash/REUTERS)

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