Rally & IPO Reception Could Heat IPO Market Again (CYOU, SOHU, MJN, BMY, LOPE)

It has been no secret that the market for initial public offerings has been one of the biggest ghost towns in the financial markets.  The secondary markets and the bond markets are opening up capital to companies, even if it comes at historically expensive prices.  But still, IPO’s have been dead.  Based upon the recent move of Changyou.com (NASDAQ: CYOU) and Mead Johnson Nutrition Company (NYSE: MJN) and upon a few other factors like a nearly 25% rise from March lows, there could be some hope that the U.S. IPO market will start to open back up.

Today was the debut for Changyou.com (NASDAQ: CYOU), the partial spin-off from Sohu.com Inc. (NASDAQ: SOHU).  Despite the notion that this MMORPG video game unit in China looks more like a tracking stock more than an operating company and despite that it it still under the control of Sohu.com, Changyou.com closed in its debut session at $20.02 on more than 8.9 million shares.  That is roughly the low of the day, but it is a gain of 25% from the pricing.

Mead Johnson Nutrition Company (NYSE: MJN) was spun-off from Bristol-Myers (NYSE: BMY) and it priced a 30 million share offering at $24.00 while the market was in free-fall and this stock is still up close to 15% since the IPO in early February.  Again, this was a spin-off rather than a new private company coming public.

Grand Canyon Education Inc. (NASDAQ: LOPE) priced its 10.5 million share IPO at $12.00 in November.  That was the only IPO of late 2008.  Despite it being a venture-backed IPO where the backers were cashing out with very little going to the company, this one did very well because it is in online education.  We know how well that has done as a result of the recession.  Shares are at $16.68 today, a again of over 35% despite a monster market correction since the IPO.

A recent study from PricewaterhouseCoopers showed just how bad the IPO market has become.  On the prospects for a recovery of IPO’s in 2009, PWC expects that “the ‘thaw’ is expected to be slow, and significant IPO activity may not return until later in 2009.”

So here is our take.  All of these recent IPO’s have had issues that investors could argue are not necessarily “clean IPO’s” in the historic sense.  Yet they have all actually held up and risen from the IPO levels.  Can we bet that a flood of IPO’s will actually make it to market very quick?  That might be jumping the gun quite a bit.  But we’d expect a wave of new filings in the near-term and amended filings so that companies can come public rapidly if the markets are still strong and holding up into and after the summer.

So, who else is on deck in IPO-land?  Adult-oriented, i.e. ‘hooking-up, social networking site FriendFinder is still in the cue to hook-up for an IPO.  Another recent filing is from OpenTable, the online reservation system for restaurants.  Whether or not these make it to market is one thing, but we won’t be shocked at all if we start to see a wave of S-1 and F-1 filings in the SEC website.

JON C. OGG
April 2, 2009