December didn’t bring many presents this year. Typically, things stay active for a few weeks before the holidays but in this case 2012 was an early wrap.
There were 6 IPO deals priced but one was a just a “blank check” company. The others were Sprott Physical Platinum (commodity fund), Silver Bay Realty (Real Estate), SolarCity (Solar), PBF Energy (oil refiner), and Western Gas Equity (midstream energy LP.)
Seven deals were officially withdrawn, including Safety-Kleen, Singulex, Bluestem Brands, Glori Energy, Era Group, Planet Payment and Rib_X Pharmaceuticals. Safety-Kleen was acquired by Clean Harbors (CLH) back in October.
It’s worth noting that the market overall has been in a slow drift down for the past few months. The Nasdaq declined 3% in Q4 and 1% in December.
The deal that caught our attention last month, Ruckus Wireless (RKUS), had a major rally after dropping below $15 The shares exited the year at just over $22 as investors came to appreciate their leading market position in “carrier Wi-Fi” equipment.
Heading into 2013 it’s hard to see any clear IPO market trends. The market faces what looks to be a mild recovery in the US economy and real estate market along with substantial uncertainty in terms of changes in tax regulations and government spending. On the regulatory front the turmoil at the SEC has delayed new initiatives related to the JOBS act.
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The ecosystem was a positive 2% in December. The top 10 names were up 43% and the bottom 10 were down 32%.
BCD Semiconductors (BCDS) was acquired at a big premium by Diodes Incorporated (DIOD) a profitable mid-sized ($635M in revenue) semiconductor company based in Plano, Texas.
We noted Ruckus Wireless (RKUS) earlier as an IPO that managed to come out quietly in a difficult market and offered investors an attractive opportunity in the aftermarket. Carrier-grade Wi-Fi should be a strong growth area for the next few years.
Intercept Pharma (ICPT) moved up in concert with the progress of one of their leading drugs for treating liver disease moving into Phase III trials.
Velti (VELT) is a bit of a broken story in online advertising that received some interest from bottom fishers.
One of our favorite development stage biotechnology names, Verastem (VSTM), started to generate some institutional interest after presenting at major conference mid-month. There are quite a few cancer-focused biotech names out there but Verastem is one of the better small cap opportunities.
We can credit tax-loss related selling for the major losers in December. Some of these may be dropped from our coverage list as they may or may not remain going concerns in 2013.
December IPO Performance & New Filings
The few deals priced in December did fairly well as a group but it should be noted that many didn’t make it out and some that did were priced below the range.
SolarCity popped 49% after being priced below the filing range. Energy deals like Western Gas and PBF Energy did well. Investors were drawn to Silver Bay as a play on a recovering US residential real estate market. Silver Bay is basically buying up houses cheap, fixing them up and turning them into rental properties.
Looking at filings we can see the trend towards US residential real estate continuing with new offerings planned from two home builders: Taylor Morrison and TRI-Point, and a residential mortgage company called Five Oaks Investment.
Many were happy to see a new filing from SeaWorld Entertainment, which promises some fun as a roadshow and offers another way to play an improving US consumer economy.
IPO Candy Folio Update
For the month of December the IPO Candy Folio was up 3.36%, which beat the average for both the S&P (+0.91%) and the Russell 2000 (+2.91%).
For the year the IPO candy Folio was up 7.4% but underperformed both the S&P 500 (up 16%) and the Russell 2000 (+14%).
As we begin 2013 we decided to “clean house” and eliminate a number of holdings. In particular we removed companies from the portfolio that have not managed well enough post-IPO in our view.
So we eliminated our positions in Active Network (ACTV), Ceres (CERE), RPX Corporation (RPXC), and Yandex (YNDX).
We still have a position in Teavana Holding (TEA), which is being acquired by Starbucks (SBUX) but we are not allowed to trade the shares now. That position will be closed when the deal is completed.
These actions give us a 26% cash level to use to add new positions and/or increase our stakes in existing ones.
More information and disclosures regarding the IPO Candy Folio can be found at: /invest.
The Pipeline of Deals and Events
The deal pipeline that we can see is about 120. Between pricings and withdrawn deals the “book-to-bill” ratio has been below parity for a couple of months. One factor is the new confidential disclosure rule that the JOBS act ushered in. The other may be some slackening of demand that was “pent-up” by the weak market of 2009.
Coverage & Lockup Expirations
There’s no new coverage scheduled for January but there are plenty of lockups coming off. A few stocks that could be particularly vulnerable to lockup expiration include: Northern Tier Energy (NTI), Chuy’s Holdings (CHUY), Palo Alto Networks (PANW) and Five Below (FIVE).
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