The Biggest IPO Failures of 2014
Despite a booming, bullish market, some companies' IPOs crashed and burned. Here’s a look at some of the biggest duds the IPO market has seen so far in 2014.
1. King Digital Entertainment (KING)
In one of the year’s biggest flops to date, London-based King Digital Entertainment debuted its stock while riding the momentum of its hit mobile game, “Candy Crush Saga.” That one title brought the company 500 million downloads, $2 billion in sales and $567 million in profits (and a name to thank for countless pun-related headlines). The electronic gaming company raised $500 million at its opening but lost 16% of its $22.50 IPO price before closing. King's valuation fell to $6 billion from $7.08 billion. Despite having 180 games under its belt, Candy Crush is the company breadwinner, accounting for 78% of King’s 2013 sales and the likely reason for the weak showing amid investor fears that the game will be a one-hit-wonder. Other struggling internet stocks may have contributed to King's IPO’s failure. The stock's descent is reminiscent of another online gaming company, Zynga (ZNGA) – of “FarmVille” and “Words with Friends” fame – which debuted with similar, disastrous results and saw their shares plunge by more than half since going public in 2011.
2. Viggle (VGGL)
Two-year-old Viggle has weathered a sharp 60% in return losses since debuting in April. The mobile television app that allows users to "check-in” and offers awards for watching TV is among one of the worst performing new stocks of the year, with a 28% stock price drop on its first day of trading in April. Expecting to raise $50 million on 2.1 million shares at a $23.50 pricepoint, Viggle only managed to pull in $35 million by offering 4.4 million shares at a meager $8 per share. Viggle’s filing happened in the midst of financial woes after the company failed to merge with competitor GetGlue in 2012.
3. EP Energy (EPE)
In a spate of energy-related IPOs struggling with valuation and failing to shore up investor interest, EP Energy raised only $713 million of a forecasted $1 billion, leading to a 10% stock drop and the worst first-day performance for a $500+ million IPO since 2009. Houston-based EP Energy is just one of the players of the domestic energy crowd looking to tap into the IPO market. Though advances in drilling technologies (such as fracking) have boosted domestic energy production, IPOs have struggled amid low natural gas prices. The Houston-based company is also experiencing high levels of debt, contributing to its market failure. CHC Group (HELI), the world’s largest commercial helicopter operator for the offshore oil and gas industry, also performed poorly, pricing 41% below the midpoint of its range in a $310 million deal.
4. Lombard Medical (EVAR)
Originally planning to offer 3.6 million shares at a range of $15-$18 and then postponing their IPO citing poor market conditions, Lombard Medical then planned for an April revival, decreasing their deal size to 5 million shares opening at $11 for trading. IPO troubles continued when their first day trading ended in a 9% price drop, closing $1 lower than expected. The med-tech company has since incurred a 40% loss on total return. The UK-based medical device company is known for their innovative endovascular stent-grafts which treat abdominal aortic aneurysms, a $1.4 billion per annum expanding market. Lombard was one of the most substantial ill-fated healthcare IPOs in a sector that saw the most 2014 IPO market activity.
5. Fifth Street Asset Management (FSAM)
In arguably one of the biggest financial flops of the year, Fifth Street Asset Management, a credit-focused alternative asset manager, had originally planned to raise $200 million by offering 8 million shares at $24 before pulling the deal weeks before its IPO debut and significantly cutting the valuation a week later to $102 million. Its fourth-quarter debut ranked fifth worst debut of the year, with a 21% loss. Despite cutting its market cap over 30% amid more favorable market conditions, investors still appeared to reject the asset manager’s projected AUM growth. Only two other finance IPOs presented lower drops in their debut in the past fourteen years: Malaysian e-payment provider MOL Global (MOLG) and last year’s REIT Trade Street (TSRE).
The Bottom Line
Sure, going public brings with it a flood of capital, but it can also expose a company to unpredictable market forces, public scrutiny and capricious shareholders. Additionally, if a company ambitiously inflates its valuation—as quite a few have this year—the results can be catastrophic. Luckily for the unlucky 2014 losers, a failed IPO does not equate a failed company, just like a successful IPO is no guarantee of a long run as a successful company.