(Adds new fourth paragraph describing summer hiatus for IPOs in
the U.S.)
By Lynn Cowan
The coming week will show whether some highly sought-after IPOs
can shine despite less-than-stellar market conditions.
On deck are initial public offerings from computer network
security firm Palo Alto Networks Inc., search engine Kayak Software
Corp., guitar maker Fender Musical Instruments Corp., discount
retailer Five Below Inc. and pharmaceutical developer Durata
Therapeutics Inc.
"I think this is an important week, because we are approaching a
point in the summer where, if things don't start getting launched,
it's going get more difficult to do so later," said Colin Diamond,
an attorney in White & Case LLP's capital-markets group.
The IPO market traditionally takes a summer hiatus, with nothing
pricing from mid-August to mid-September. Road shows marketing the
deals in the U.S. generally start up after Labor Day weekend in
early September.
The largest deal coming this week, Palo Alto's $229 million
offering, is also expected to attract the most interest from
investors, thanks to strong revenue growth--it more than doubled in
the nine months that ended April 30--and its focus on replacing
companies' older security firewalls with its own next-generation
firewall system. Palo Alto is set to price Thursday and trade on
the New York Stock Exchange as PANW.
Demand for the deal is "massive," said Scott Sweet, senior
managing partner at IPOBoutique.com. Three others--all of which are
listing on the Nasdaq Stock Market--appear to be in good shape,
too, according to Mr. Sweet. Kayak, which is scheduled to raise
$87.5 million as KYAK, is a well-known consumer travel website that
saw first-quarter revenue increase 39% compared to the same period
in 2011. Five Below, whose customer base of teen shoppers has
helped it notch 24 quarters of positive same-store sales and
first-quarter net sales growth of nearly 52% year-over-year, wants
to raise $134 million as FIVE. Guitar-maker Fender, which plans to
raise $161 million as FNDR, is another recognizable consumer brand,
although it operates a more mature, slower-growth business than the
others, with revenue up 2% in the first quarter year-over-year.
The one deal that isn't a sure bet is Durata Therapeutics, which
wants to raise $81 million on the Nasdaq as DRTX. The company,
which has never been profitable, hasn't yet received approval for
any of its drugs. Early-stage drug developers can have a difficult
time pricing and trading even in perfect market conditions,
although the last one that came public, Tesaro Inc. (TSRO), priced
within its expected range and traded up slightly during its debut
last month. Its shares closed Friday above its first-day gain.
The deals are coming in the wake of a broader market environment
that has mostly trended down in the past week. Stocks notched their
sixth straight decline Thursday, but they traded higher Friday. A
positive note is that market volatility, as measured by the CBOE
Volatility Index, remains below 21.
IPOs generally do best when the broader market is trending
higher and volatility is lower, because investors tend to be
willing to take on more risk under such conditions. IPOs are
considered a riskier class of stocks than companies that are
already public.
The week's coming slate of offerings will have a slightly easier
go of it after four companies managed to pull off debuts in late
June. That followed an empty stretch after the disappointing launch
of Facebook Inc. (FB) on May 18. Three of the four companies that
launched in June priced within or above their expected ranges and
traded higher on their first day out; all but one have made further
gains since.
Even beyond this coming week, IPOs appear to be picking up
steam, according to data tracker Dealogic. Five other companies
filed initial terms this week, with four expected to go public
later this month, including health-food retailer Natural Grocers by
Vitamin Cottage Inc., software firm E2open Inc., Avast Software BV
and Mexican restaurant operator Chuy's Holdings Inc. Eight
companies have registered preliminary prospectuses in the first two
weeks of July; just nine did so in all of June, by Dealogic's
count.
Write to Lynn Cowan at lynn.cowan@dowjones.com