IPO activity typically dries up in a recession. As stock valuations plummet, most companies hold off and wait until they can get a premium for their shares. However, during this recent recession, there were still a number of very significant IPOs. (For related reading, check out our IPO Tutorial.)
The Tesla Motors (Nasdaq:TSLA) IPO was certainly one of the more alluring offerings of the recession. The start-up American automaker makes sexy electric-powered sports cars. The 2009 Roadster model goes from 0 to 60mph in only 3.7 seconds, making it one of the fastest accelerating vehicles in the world - and it gets 120 miles per gallon (gasoline equivalent).
The buzz surrounding the IPO lead to a significant first day pop, closing over 40% above its $19 per share opening price. But there are still serious concerns about the long term profitability of Tesla. The Wall Street Journal correctly warned, "glamor and excitement are not the same as a sound investment. Indeed the reverse is more often the case." Tesla's price briefly reached over $28 per share, before pulling back. Finally, the stock seems to have stabilized and has been trading the range of $20 per share.
Agricultural Bank of China (Agbank)
While most readers have probably never heard of the AgBank, it is major player in Chinese banking - the last of four state-owned banks to sell shares to the general public. AgBank's IPO is particularly notable as it was speculated to be the largest IPO in the world. The previous record was set by another state-owned Chinese bank, Industrial & Commercial Bank of China Ltd., which raised approximately $21.9 billion in its 2006 IPO. AgBank raised $19.21 billion in its IPO on July 6, and it could raise over $22 billion if overallotment options are exercised (allowing banks to sell more shares). The issue is traded on both the Hong Kong and Shanghai stock exchanges
The Visa (NYSE:V) IPO is a tale of a company apparently immune from recession fears. Bear Stearns had just gone down in a $2 per share fire sale to JP Morgan on March 16, 2008. Market watchers wondered whether a systemic market calamity was close at hand. Three days later Visa raised $17.9 billion from its IPO, making it the largest IPO is U.S. history. Apparently, investors felt confident that Visa, which charges a fee for each credit or debit card transaction, would not suffer significantly from the economic downturn. Visa shares declined initially as the economy sunk into full-on recession mode, but have since outperformed the market. (For more, see Wall Street History: Visa's IPO.)
The timing of the Hyatt Hotels (NYSE:H) IPO was certainly strange, considering that the recession was particularly unkind to the industry. A Time article suggests that the offering may have been forced, due to inheritance issues in the family that owns Hyatt. Despite these worries surrounding the future ownership of the company, the offering was successful, with shares appreciating over 10% on their first day of trading on November 5, 2009, closing near $28 per share.
Nevertheless, Hyatt's IPO demonstrates why it's better to hold off on offering shares until the industry turns around. Economic indicators improved in 2010, and Hyatt shares are now trading between $35 and $40 per share. Multiply an extra $10 to $15 per share by the 38 million shares in the IPO and you will see how much more money could have been raised through a better timed IPO (between $380 million and $570 million).
Recessions are not bad for everyone. According to the New York Times, discount retailers like Dollar General (NYSE:DG) actually experienced significant sales growth during the recession. Fortune reports that Dollar General experienced profit growth of 213.8% in 2009. Dollar General is now ranked number 195th in the 2010 Fortune 500 list of the largest companies in America. So the recession was actually an opportune time for the Dollar General IPO. The private equity firm that owns Dollar General sold off only about 10% of the company in the IPO for a total of $716 million.
Dole Food Company
Dole (NYSE:DOLE) is another firm whose timing on the IPO was a little questionable. Certainly in such a down market, Dole could not expect to get a premium for its shares. Rather, it seems Dole was motivated to raise capital in order to pay down its considerable $1.9 billion of long-term debt. Investors appeared wary of the offering and its price moved down slightly in a lackluster first day of trading on October 23, 2009. The stock has its backers, including market commentator Jim Cramer, who likes Dole's proactive moves to pay down debt, its management and its valuation relative to its principal competitors. However, the stock has continued to trend downward, and is currently trading around $11 per share, down from its $12.45 IPO price.
The Bottom Line
While you will want to be suspicious of any IPO that happens during a recession, there are bargains to be found for those willing to do their research and take big risks. (For related reading, check out The Murky Waters Of The IPO Market.)
Catch up on your financial news; read Water Cooler Finance: Billionaire Pledges and Other Positive Press.
Chart AdvisorThere has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
Mutual Funds & ETFsThese Schwab funds are strategically designed and have performed well on a historical basis, meaning they're solid options for retirement.
Mutual Funds & ETFsPlanning for retirement in this economic and investment environment is far from easy. American Funds might offer an answer.
Mutual Funds & ETFsLow expense ratios are a big selling point for ETFs, but are they being focused on too much?
Financial AdvisorsTarget date funds have grown in popularity as an investment of choice among 401(k) investors. Here's a closer look at Vanguard's offerings.
Investing BasicsLearn how poor management, frauds, scandals or mergers wiped out some of the most recognizable brands in the finance industry in the United States.
SavingsUnderstand how the problems of ultra-high-net-worth individuals (UHNWIs) are different from ordinary problems, and identify the unique financial challenges they face.
Stock AnalysisAs a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
Mutual Funds & ETFsFidelity's retirement funds might offer long-term potential, but perhaps a better opportunity is available.
Stock AnalysisDemand for relationships is always high. Now you will have a way to directly invest in the relationship market. But is it priced fairly?
Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
Facebook, Inc. (NASDAQ: FB) went public with its initial public offering (IPO) on May 18, 2012. With a peak market capitalization ... Read Full Answer >>
Interest rates rarely increase during a recession. Actually, the opposite tends to happen; as the economy contracts, interest ... Read Full Answer >>
Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
Investment banking and commercial banking are two primary segments of the banking industry. Investment banks facilitate the ... Read Full Answer >>