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2009 Global IPO Market Review and 2010 Outlook

2009 Stabilization Sets the Stage for Increased Momentum in 2010

It is a testament to the resilience of global economies, entrepreneurship, and financial animal spirits that the global IPO market rebounded as quickly and strongly as it did in 2009 after the devastations of worldwide stock markets and banking systems in 2008. 2009 will be seen as a transition year between crisis and recovery to normalcy. While aggregate global proceeds are still well below normal levels, issuance accelerat ed through the year, creating a solid foundation for 2010.

Key takeaways:

2009 was a transition year between crisis and normalcy

The US market accelerated through the year, dominated by private equity

Venture-backed companies remained on the sidelines to wait for 2010

Returns were initially strong but faded as the year went on

The US saw an influx of Chinese growth IPOs, which dominated both the best- and worst-performing lists

Chinese IPO issuance increased dramatically following the reopening of the Shanghai market

The largest IPOs, both in the US and globally, were generally insulated from the economic crisis

Global performance outpaced US owing to strong Shanghai returns

2010 should see a comeback for growth IPOs in the US and a continued revival worldwide

Global IPO Proceeds (US$ bil)

$300 $256.7 $219.9 $250 $200 $148.4 $150 $109.0 $105.8 $80.7 $100 $50 $0 2004 2005 2006
$300
$256.7
$219.9
$250
$200
$148.4
$150
$109.0
$105.8
$80.7
$100
$50
$0
2004
2005
2006
2007
2008
2009

# of Deals

554 600 461 500 400 345 257 300 178 200 120 100 0 2004 2005 2006
554
600
461
500
400
345
257
300
178
200
120
100
0
2004
2005
2006
2007
2008
2009

Source: RenaissanceCapital.com. Reflects deals with gross proceeds of over US$100 million.

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2009 Global IPO Market Review and 2010 Outlook 2009 Stabilization Sets the Stage for Increased Momentum

The revival of the global IPO market was uneven. There were stark differences in the characteristics and industries of IPOs originating from the dominant global players, the US and China. US-based IPOs were led by LBOs and mortgage REITs, reflecting private equity investors’ need to deleverage on one hand and financial opportunism on the other. In contrast, Chinese IPOs, whether debuting in the US, China or Hong Kong, raised money to pour into China’s domestic infrastructure, its nascent pharmaceutical industry, and other consumer-oriented enterprises. In a nutshell, the US IPO market activity has largely been geared to healing the excesses of overleveraging in private equity and real estate, while the Chinese IPOs reflect a growth economy.

That said, there are signs that traditional growth IPOs are returning in the US. There are over 20 venture capital-backed IPOs in the pipeline and the shadow pipeline for 2010 holds at least 50 more. A significant comeback of traditional growth IPOs would signify a return of US economic growth, as young, fast-growing companies use IPO proceeds to hire new employees and invest in their businesses.

US IPO market accelerated, driven by private equity

The US IPO market began 2009 as it had ended 2008: at a standstill. Only one company went public during the first three months of the year. However, as the broader equity indices improved and money began to move off the sidelines, IPO volume improved sequentially in each of the next three quarters, buoyed by private equity-backed deals, mortgage REITs and Chinese ADRs. For the year, there were 63 US IPOs, up 47% from 2008 (and double 2008’s total excluding SPACs). Although the $22 billion in gross proceeds was down year-over-year, this was solely due to Visa’s $18 billion 2008 offering; excluding that deal and the SPACs, IPO proceeds in 2009 would have tripled.

Summary IPO Data - US IPOs

 

2003

2004

2005

2006

2007

2008

2009

No. of Deals

70

217

214

221

272

43

63

Total Proceeds (billions)

$15.4

$43.0

$35.6

$44.9

$59.7

$28.0*

$21.9

Average Deal Size (millions)

$220

$198

$166

$203

$219

$650*

$348

Median Deal Size (millions)

$120

$94

$107

$111

$120

$168

$155

Source: RenaissanceCapital.com Includes 1, 21, 24, 58 and 12 SPACs in 2004, 2005, 2006, 2007 and 2008, respectively. * Excluding Visa, 2008 proceeds and average deal size would have been $10.1 billion and $241 million, respectively.

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The revival of the global IPO market was uneven. There were stark differences in the characteristics

Private equity took advantage of opportunities to monetize investments

The wave of private equity IPOs was driven by the pressing need of many of the mid-decade crop of LBOs to pay down

debt, causing financial sponsors to rush many of their portfolio companies to market. Closed out of the public market for all of 2008, private equity firms were willing to go to market even if valuations were not what they would have been in 2006-2007. Some companies were backed by the private equity arms of investment banks, which had added incentives in bringing these companies public, such as repayment of TARP funds. For these reasons, 22 private equity-backed companies went public in 2009, including discount retailer Dollar General (DG), chip company Avago (AVGO) and online education firm Education Management (EDMC). The proceeds raised by private equity deals in the second half of the year put the category at a run rate similar to 2007, before the recession began. However, with many of these IPOs driven by necessity, investors forced valuations down, causing these stocks to price on average 9% below the midpoint of their originally proposed IPO ranges.

Private Equity IPOs Returned, Unlike Venture Deals (in $ billions) $5.0 $4.5 $4.5 $4.1 $3.9 $4.0
Private Equity IPOs Returned, Unlike Venture Deals
(in $ billions)
$5.0
$4.5
$4.5
$4.1
$3.9
$4.0
$3.5
$3.1
$3.0
$3.0
$2.5
$2.3
$2.3
$2.1
$1.8
$2.0
$1.4
$1.5
$1.0
$0.7
$0.5
$0.5
$0.5
$0.3
$0.4
$0.5
$0.2
$0.2
$0.3
$0.1
$0.0
$0.0
$0.0
$0.0
$0.0
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
2007
2008
2009
Venture-backed
Private Equity

Source: RenaissanceCapital.com

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Private equity took advantage of opportunities to monetize investments The wave of private equity IPOs was22 private equity-backed companies went public in 2009, including discount retailer Dollar General (DG), chip company Avago (AVGO) and online education firm Education Management (EDM C). The proceeds raised by private equity deals in the second half of the year put the category at a run rate similar to 2007, before the recession began. However, with many of these IPOs driven by necessity, investors forced valuations down, causing these stocks to price on average 9% below the midpoint of their originally proposed IPO ranges. Private Equity IPOs Returned, Unlike Venture Deals (in $ billions) $5.0 $4.5 $4.5 $4.1 $3.9 $4.0 $3.5 $3.1 $3.0 $3.0 $2.5 $2.3 $2.3 $2.1 $1.8 $2.0 $1.4 $1.5 $1.0 $0.7 $0.5 $0.5 $0.5 $0.3 $0.4 $0.5 $0.2 $0.2 $0.3 $0.1 $0.0 $0.0 $0.0 $0.0 $0.0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2007 2008 2009 Venture-backed Private Equity Source: RenaissanceCapital.com 3 " id="pdf-obj-2-35" src="pdf-obj-2-35.jpg">

Venture-backed companies remained on the sidelines to wait for 2010

Venture capital, on the other hand, did not take advantage of the reopened IPO window the way private equity did. On the demand side, investors were still cautious of unproven, not-yet-profitable companies. For that reason, many venture firms made the strategic decision to write off 2009 early and instead focus on building their companies for 2010. With valuation multiples for small-cap stocks still well below pre-recession levels, backers of near-profitable companies that had no pressing need for capital opted to remain on the sidelines and wait for higher IPO valuations instead of rushing to go public. As the weaker companies were unable to go public and the stronger ones unwilling, only 12 venture-backed companies went public this year, well below historical levels. Nevertheless, venture produced several strong performers, including restaurant reservation platform OpenTable (OPEN), electric car battery developer A123 (AONE) and network security software provider Fortinet (FTNT). With 21 venture-backed companies filing for IPOs in the last four months of the year, the groundwork is being laid for a 2010 comeback. Despite the lack of venture-backed IPOs during 2009, there was an uptick of activity from the traditional venture sectors of technology, healthcare and consumer. While the 33 companies that went public from these sectors were mostly mature or had required minimal start-up capital, they nevertheless demonstrate investor interest in these areas.

Venture-backed companies remained on the sidelines to wait for 2010 Venture capital, on the other hand,12 venture-backed companies went public this year , well below historical levels. Nevertheless, venture produced several strong performers, including restaurant reservation platform OpenTable (OPEN), electric car battery developer A123 (AONE) and network security software provider Fortinet (FTNT) . With 21 venture-backed companies filing for IPOs in the last four months of the year, the groundwork is being laid for a 2010 comeback. Despite the lack of venture-backed IPOs during 2009, there was an uptick of activity from the tradi tional venture sectors of technology, healthcare and consumer. While the 33 companies that went public from these sectors were most ly mature or had required mi nimal start-up capital, they nevertheless demonstrate investor interest in these areas. Source: RenaissanceCapital.com 4 " id="pdf-obj-3-33" src="pdf-obj-3-33.jpg">

Source: RenaissanceCapital.com

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Venture-backed companies remained on the sidelines to wait for 2010 Venture capital, on the other hand,12 venture-backed companies went public this year , well below historical levels. Nevertheless, venture produced several strong performers, including restaurant reservation platform OpenTable (OPEN), electric car battery developer A123 (AONE) and network security software provider Fortinet (FTNT) . With 21 venture-backed companies filing for IPOs in the last four months of the year, the groundwork is being laid for a 2010 comeback. Despite the lack of venture-backed IPOs during 2009, there was an uptick of activity from the tradi tional venture sectors of technology, healthcare and consumer. While the 33 companies that went public from these sectors were most ly mature or had required mi nimal start-up capital, they nevertheless demonstrate investor interest in these areas. Source: RenaissanceCapital.com 4 " id="pdf-obj-3-39" src="pdf-obj-3-39.jpg">

Influx of Chinese growth IPOs

In addition to the private equity rebound, two other major themes stood out in this year’s crop of IPOs. One was US

listings by Chinese companies. Along with a large number of listings on the Hong Kong and Shanghai exchanges, discussed later in this report, there were 11 US listings by Chinese companies, up from 4 in 2008. With China continuing to show significant economic growth, IPO investors were attracted to a variety of sectors, including online gaming, hotels, pharmaceuticals and infrastructure.

Influx of Chinese growth IPOs In addition to the private equity rebound, two other major themes

Source: RenaissanceCapital.com

Opportunistic REITs and financials also made an impact

The residential and commercial real estate implosion spawned seven mortgage REIT IPOs, which sought to take advantage of low borrowing costs and the competitive advantage of a clean balance sheet by investing in high-yielding mortgages or mortgage-backed securities. In addition, there were also IPOs by Brazilian bank Santander Brasil and asset manager Artio Global Investors, as well as REITs focused on government offices and hotels.

The largest IPOs were generally insulated from the slowdown

Partly as a result of investor demand for more mature companies and the uptick in private equity IPOs, average deal size

was $348 million, up 44% from 2008 (excluding that year’s massive Visa offering). The five largest IPOs came from several sectors, and most are to some degree insulated from the global economic slowdown. Brazilian bank Santander Brasil and Chinese online game operator Shanda Games are benefiting from their exposure to relatively high-growth economies, while protein therapy producer Talecris and insurance data provider Verisk operate in defensive industries. All four of these companies had shown double-digit top-line growth in both 2008 and the first six months of 2009. By

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Influx of Chinese growth IPOs In addition to the private equity rebound, two other major themes

contrast, upper upscale hotel chain Hyatt had taken a heavy impact from the downturn but appealed to investors looking for a play on long-term global economic recovery.

Largest US IPOs

 

IPO Date

Company

Ticker

Business Description

Deal Size ($mm)

Industry

Return*

10/6/09

Banco Santander Brasil

BSBR

The fourth-largest bank in Brazil.

$4,025†

Financial

4%

10/6/09

Verisk Analytics

VRSK

Provides data and models for insurance firms.

$1,876

Bus. Services

38%

9/24/09

Shanda Games

GAME

Chinese online games developer and operator.

$1,044

Technology

-18%

11/4/09

Hyatt Hotels

H

Global upscale hotel operator and developer.

$950

Consumer

19%

9/30/09

Talecris Biotherapeutics

TLCR

Maker of plasma-derived protein therapies.

$950

Health Care

17%

Source: RenaissanceCapital.com *Based on offer price through 12/31/09. †Reflects NYSE shares only.

Returns were initially strong but faded as the year went on

Performance of 2009’s new issues was much improved over 2008, although less strong than historical standards. The year’s pattern matched the trend seen in previous slowdowns that low issuance volume leads to strong IPO returns as only the highest-quality companies can go public and investors demand discounted initial valuations. Early in the year, performance was very strong as growing companies with attractive valuations were taken public. Later in the year, performance weakened as a result of a wave of private equity IPOs with more aggressive valuations and riskier companies taking advantage of the widening window of opportunity for IPOs. To exemplify this dichotomy, IPOs in the first half of the year had an average 18% first-day pop and had gained 40% as of year-end; on the other hand, IPOs from the second half of the year rose 4% on their first day and moved up only 4% in the aftermarket.

Summary IPO Returns - US IPOs

 

2003

2004

2005

2006

2007

2008

2009

Total Return*

30%

35%

19%

26%

13%

-33%

16%

First Day Return

13%

11%

11%

11%

13%

3%

7%

Aftermarket Return*

11%

21%

6%

12%

1%

-36%

8%

FTSE Renaissance IPO Index Return

26%

33%

23%

18%

15%

-52%

55%

% IPOs with NEGATIVE first day returns

17%

19%

21%

21%

25%

58%

32%

Source: RenaissanceCapital.com *All performance data excludes SPACs. Based on offer price through year-end.

 

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contrast, upper upscale hotel chain Hyatt had taken a heavy im pact from the downturn but

The best performers were Chinese…

The deterioration in IPO performance is evidenced by the lists of best- and worst-performing IPOs; four of the five best performers were IPOs from the first half of the year, which had an average 20% first-day pop and then gained significantly in the aftermarket, buoyed by the broader market rebound that began in March. The top three US-listed IPOs were

Chinese companies, including online game developer Changyou.com and water treatment equipment manufacturer Duoyuan Global Water as well as the small offering by wire manufacturer Lihua. These were followed by networking software provider SolarWinds and pediatric nutrition company and Bristol-Myers spinoff Mead Johnson.

Best Performing US IPOs

 

IPO Date

Company

Ticker

Business Description

Deal Size ($mil)

Industry

Return*

9/4/09

Lihua International

LIWA

China-based manufacturer of bimetallic wire.

$9

Materials

161%

6/23/09

Duoyuan Global

DGW

Chinese manufacturer of water treatment equipment.

$88

Capital Goods

124%

4/1/09

Changyou.com

CYOU

Online game developer and operator in China.

$120

Technology

108%

5/19/09

SolarWinds

SWI

Enterprise network management software provider.

$152

Technology

84%

2/10/09

Mead Johnson

MJN

Manufacturer of pediatric nutrition products.

$720

Consumer

82%

Source: RenaissanceCapital.com *Based on offer price through 12/31/09.

…but so were the worst performers

At the other end of the spectrum, four of the year’s five worst-performing IPOs went public in the second half of the year.

These were generally lower-quality companies with more risky profiles, and their ability to successfully raise capital at all was indicative of the widening IPO market over the course of the year. Three of the five worst performers were Chinese companies, making it clear that investors were looking at the country’s IPOs on a deal-specific basis. The bottom five were rounded out by two small pharmaceutical companies.

Worst Performing US IPOs

 

IPO Date

Company

Ticker

Business Description

Deal Size ($mil)

Industry

Return*

10/7/09

Omeros

OMER

Developing drugs to treat surgery-related pain.

$68

Health Care

-30%

6/23/09

Chemspec Intl.

CPC

Chinese manufacturer of fluorinated chemicals.

$73

Materials

-27%

12/11/09

Concord Medical

CCM

Lessor of equipment to cancer centers in China.

$132

Health Care

-21%

8/10/09

Cumberland Pharma.

CPIX

Sells specialty pharmaceuticals for pain/fever

$85

Health Care

-20%

8/5/09

CDC Software

CDCS

Chinese enterprise software provider.

$58

Technology

-20%

Source: RenaissanceCapital.com *Based on offer price through 12/31/09.

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The best performers were Chinese… The deterioration in IPO performance is evidenced by the list s

The FTSE Renaissance IPO Composite Index outperformed other major indices

The FTSE Renaissance IPO Composite Index gained 54.9% in 2009 and significantly outperformed the other major equity indices. As IPO issuance picked up in the second half of the year, 61 newcomers were added to the Index in 2009, most notably ancestry.com (ACOM), rue21 (RUE), Dollar General (DG), Vitamin Shoppe (VSI), and Fortinet (FTNT). For more

on the performance of the Index in 2009, please see the FTSE Renaissance IPO Composite Index 2009 Annual Review.

The FTSE Renaissance IPO Composite Index outperformed other major indices The FTSE Renaissance IPO Composite IndexFTSE Renaissance IPO Composite Index 2009 Annual Review . Source: RenaissanceCapital.com Global IPO activity was domin ated by China’s resurgence The recovery of global IPO activity was most pronounced in Asia, particularly on the Hong Kong and Shanghai markets. Those two exchanges together raised $ 54 billion, which accounted for 51% of total global proceeds. Most of the activity was seen in the third quarter after the Chinese governm ent ended a nine-month IPO freeze on the Shanghai exchange, leading to a slew of companies going public that had been waiti ng to raise capital for nearly a year or more. In fact, the $25 billion raised in Shanghai was a record haul for that exchange. With China continuing to show economic growth and many companies benefiting from the govern ment’s massive stimulus package, IPO investors were clearly driven to seek exposure to this market. In global regions beyond the US and Asia, the recovery was less pronounced or occurred later in the year. For example, European proceeds actually fell significantly from 2008, as 2009 did not see the energy IPOs generated by early 2008’s 8 " id="pdf-obj-7-14" src="pdf-obj-7-14.jpg">

Source: RenaissanceCapital.com

Global IPO activity was dominated by China’s resurgence

The recovery of global IPO activity was most pronounced in Asia, particularly on the Hong Kong and Shanghai markets. Those two exchanges together raised $54 billion, which accounted for 51% of total global proceeds. Most of the activity was seen in the third quarter after the Chinese government ended a nine-month IPO freeze on the Shanghai exchange, leading to a slew of companies going public that had been waiting to raise capital for nearly a year or more. In fact, the $25 billion raised in Shanghai was a record haul for that exchange. With China continuing to show economic growth and many companies benefiting from the government’s massive stimulus package, IPO investors were clearly driven to seek exposure to this market.

In global regions beyond the US and Asia, the recovery was less pronounced or occurred later in the year. For example, European proceeds actually fell significantly from 2008, as 2009 did not see the energy IPOs generated by early 2008’s

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The FTSE Renaissance IPO Composite Index outperformed other major indices The FTSE Renaissance IPO Composite IndexFTSE Renaissance IPO Composite Index 2009 Annual Review . Source: RenaissanceCapital.com Global IPO activity was domin ated by China’s resurgence The recovery of global IPO activity was most pronounced in Asia, particularly on the Hong Kong and Shanghai markets. Those two exchanges together raised $ 54 billion, which accounted for 51% of total global proceeds. Most of the activity was seen in the third quarter after the Chinese governm ent ended a nine-month IPO freeze on the Shanghai exchange, leading to a slew of companies going public that had been waiti ng to raise capital for nearly a year or more. In fact, the $25 billion raised in Shanghai was a record haul for that exchange. With China continuing to show economic growth and many companies benefiting from the govern ment’s massive stimulus package, IPO investors were clearly driven to seek exposure to this market. In global regions beyond the US and Asia, the recovery was less pronounced or occurred later in the year. For example, European proceeds actually fell significantly from 2008, as 2009 did not see the energy IPOs generated by early 2008’s 8 " id="pdf-obj-7-42" src="pdf-obj-7-42.jpg">

record energy prices. However, the continent still produced $6 billion in fourth quarter IPO activity, compared with under $500 million for the first nine months, which suggests that Europe’s IPO markets have only recently begun to recover.

The only other region to see a significant decline in IPO activity was the Middle East and Africa, which saw a continuation of the 2008 declines as risk appetite dried up for frontier emerging markets. The biggest casualties were Saudi Arabia and the UAE, which together raised $10.5 billion last year in the midst of the oil price run-up but only generated $747 million in 2009. Although oil prices have appreciated since the beginning of this year, the recent Dubai debt standstill will almost certainly have a negative impact on the Middle East’s IPO activity in 2010. On the other hand, Africa may see an improvement next year after 2009 produced only one IPO.

Global Market Share by Region

Asia Pacific

North America

Rest of World*

$150 $150 $125 $125 $100 $100 $78.7 $72.8 $67.4 $75 $75 $43.7 $50 $50 $23.8 $25
$150
$150
$125
$125
$100
$100
$78.7
$72.8
$67.4
$75
$75
$43.7
$50
$50
$23.8
$25
$25
$0
$0
2005
2006
2007
2008
2009
 

$41.2

$45.8

$31.9 $24.5
$31.9
$24.5

$22.1

2005

2006

2007

2008

2009

$150 $138.2 $125 $100.0 $100 $72.8 $75 $50 $32.4 $16.4 $25 $0 2005 2006 2007 2008
$150
$138.2
$125
$100.0
$100
$72.8
$75
$50
$32.4
$16.4
$25
$0
2005
2006
2007
2008
2009
Global IPO Market - 2008 North America 30% Rest of World* 41%
Global IPO Market - 2008
North America
30%
Rest of World*
41%

Asia Pacific

29%

Global IPO Market - 2009

Rest of World*

North America 15% 21%
North America
15%
21%

Asia Pacific

64%

Source: RenaissanceCapital.com. *Includes Europe, Latin America and Middle East/Africa.

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record energy prices. However, the continent still produced $6 billion in fourth quarter IPO activity, compared

Consumer, financial and infrastructure companies drove the rebound, particularly in China

Although international IPOs, like those in the US, came from a variety of different industries, some common themes did emerge. The rebound in Chinese IPO activity was largely driven by consumer and financial IPOs, in particular many related to the country’s booming real estate sector. The last three months, for example, saw new issues by six property

developers as well as a pre-fabricated house designer and an interior decorating firm. These real estate IPOs were accompanied by a department store operator, a movie producer, a travel agency, a bank, a brokerage and a property/casualty insurer. With GDP still positive and the middle class growing in China, consumer-oriented businesses appear to be leading the country’s IPO recovery.

The financial theme that was seen in both the US and China was also echoed in other markets. Four of the year’s five UK IPOs and three of the six Brazilian deals were financial companies, while many other countries also produced financial IPOs. These companies ranged from banks to insurers to payment processors, with demand driven by low borrowing rates, improved competitive positions for those companies able to avoid the heavy effects of the downturn and the continued development of emerging economies. Overall, financial companies raised $36 billion, over one-third of the year’s IPO proceeds.

The other notable theme was infrastructure, particularly from China but also notably India. With investors attracted by growing economies and large government stimulus packages, $36 billion was raised by companies in the capital goods, materials, energy, utilities and transportation sectors. India produced several large power generation IPOs, while China saw a host of engineering and construction companies; Europe’s largest new issue was a Polish utility. There were also IPOs by pipeline operators, shipping companies and energy product manufacturers.

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Consumer, financial and infrastructure companies drove the rebound, particularly in China Although international IPOs, like those

Largest IPOs were financials and infrastructure plays

Given the dominance of the financial and infrastructure themes, it is no surprise that the top five IPOs included two

Chinese construction firms and three financial companies, two Brazilian and one Chinese. Also in the top ten were two power generation IPOs, a shipbuilder, a casino operator and Malaysia’s largest mobile phone carrier. As with the overall stats, China dominated the largest IPO list, representing six of the ten stocks.

Largest IPOs

Company

Ticker

Market Country

Offer Date

Deal Size ($mil)

Industry

Return from IPO

China State Construction

601668.CH

China

7/23/2009

$7,343

Capital Goods

13%

Banco Santander Brasil+

BSBR

United States

10/6/2009

$7,026

Financial

4%, 2%

Metallurgical Corp. of China+

1618.HK

Hong Kong

9/16/2009

$5,129

Capital Goods

-28%, 0%

China Minsheng Banking

1988.HK

Hong Kong

11/19/2009

$3,892

Financial

-4%

Visanet

VNET3.BZ

Brazil

6/25/2009

$3,769

Financial

2%

Maxis

MAXIS.MK

Malaysia

11/9/2009

$3,163

Communications

13%

China Pacific Insurance

2601.HK

Hong Kong

12/16/2009

$3,110

Financial

10%

Sands China

1928.HK

Hong Kong

11/21/2009

$2,505

Consumer

-9%

China Longyuan Power

916.HK

Hong Kong

12/4/2009

$2,253

Energy

23%

China Shipbuilding Industry

601989.CH

China

12/10/2009

$2,157

Transportation

6%

Source: RenaissanceCapital.com. +Santander Brasil was a dual listing in US and Brazil; Metallurgical Corp. was a dual listing in Hong Kong and Shanhai.

Performance was stronger than in the US, with Shanghai leading

Consistent with broader equity indices, global IPO performance was positive with the average IPO gaining 27% from offer price to December 31. The positive performance was largely driven by China, as Shanghai-listed deals traded up 55% on average and Hong Kong deals gained an average of 23%. By contrast, the rest of the world’s IPOs gained a respectable 16%. Outside of China, IPO markets saw some similar patterns to those discussed in the US section of this report; IPOs later in the year were often pitched at aggressive multiples and larger IPOs, many backed by private equity or spinoffs, saw some trading resistance.

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Largest IPOs were financials and infrastructure plays Given the dominance of the financial and infrastructure themes

Best performers were smaller Chinese companies

China’s outperformance is readily apparent on the list of the top ten performers; eight were Shanghai or Hong Kong listings and one was a Chinese company that listed in the US. Notably, all of these deals were relatively small, with the largest raising just under $500 million. The largest-represented sector was consumer, with four deals.

Best Performing IPOs

Company

Ticker

Market Country

Offer Date

Deal Size ($mil)

Industry

Return from IPO

Shenzhen Salubris Pharmaceuticals

002294.CH

China

8/31/2009

$140

Health Care

227%

Korea Power Engineering

052690.KS

South Korea

12/8/2009

$143

Capital Goods

164%

Shenzhen Gas Corp.

601139.CH

China

12/15/2009

$132

Energy

141%

Shenguan Holdings

829.HK

Hong Kong

10/7/2009

$496

Consumer

128%

Bawang International

1338.HK

Hong Kong

6/26/2009

$215

Consumer

127%

Changyou.com

CYOU

United States

4/1/2009

$120

Technology

108%

Sany Heavy Equipment International

631.HK

Hong Kong

11/18/2009

$310

Capital Goods

104%

Huayi Brothers Media

300027.CH

China

10/13/2009

$176

Consumer

94%

CPMC Holdings

906.HK

Hong Kong

11/6/2009

$139

Materials

90%

Jiangsu Yanghe Brewery

002304.CH

China

10/23/2009

$395

Consumer

90%

Source: RenaissanceCapital.com

Worst performers came late in the year, when broadening market allowed weaker companies to go public

Similar to the US trend, most of the worst-performing global IPOs priced late in the year, with all but one pricing in the last

four months. Six of the bottom ten were Chinese companies, either listing in China or in the US; China’s appearances at both the top and the bottom ends of the performance spectrum demonstrates the wide variety of companies going public there as well as overall investor selectivity.

Worst Performing IPOs

Company

Ticker

Market Country

Offer Date

Deal Size ($mil)

Industry

Return from IPO

China South City

1668.HK

Hong Kong

9/22/2009

$406

Consumer

-32%

Metallurgical Corp. of China

1618.HK

Hong Kong

9/16/2009

al$2,352

Capital Goods

-28%

Agribank Securities JSC

AGR.VN

Vietnam

12/2/2009

$208

Financial

-25%

Indiabulls Power

IBPOW.IN

India

10/20/2009

$331

Energy

-23%

Concord Medical Services

CCM

United States

12/11/2009

$132

Health Care

-21%

Glorious Property

845.HK

Hong Kong

9/25/2009

al$1,277

Financial

-20%

Silver Base Group

886.HK

Hong Kong

4/3/2009

$134

Consumer

-20%

Dongkuk Structures

100130.KS

South Korea

8/17/2009

$200

Materials

-19%

RailAmerica

RA

United States

10/12/2009

$330

Transportation

-19%

Shanda Games Limited

GAME

United States

9/24/2009

al$1,044

Technology

-18%

Source: RenaissanceCapital.com

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Best performers were smaller Chinese companies China’s outperformance is readily apparent on the list of t

2009 was a transition year that should pave the way for increased momentum in 2010

The 2009 IPO market played out mostly as we expected. IPOs came back slowly at first with activity accelerating through

the year and deal flow dominated by mature companies, including a large number of private equity-backed firms. Though performance soured toward the end of the year, this represents a natural progression in the IPO market’s recovery with buyers negotiating hard on price amidst a saturation of LBO offerings. In retrospect, 2009 was largely a transition year. Looking forward, several market developments are in place for 2010 to mark the return of the growth IPO.

Filing activity has picked up, with 21 venture-backed companies filing for IPOs in the last four months of 2009. The list includes a number of profitable, fast-growing technology names, a high-profile cleantech company, and interestingly a number of biotechs. Beyond this list, there is a sizeable number of high-quality growth companies that anecdotal evidence suggests are set to begin the IPO process. With many venture firms putting IPO plans on hold early in 2009, we could see a number of notable growth IPOs in 2010, including at least one of the big social networking sites. The bottom line is that the VC supply is large, and mounting pressures for liquidity on one hand and a growing appetite among investors for growth on the other should widen the IPO funnel for this important segment of the new issues market.

Notable Venture-Backed IPOs in the Pipeline

 

Company

Business Description

Industry

LTM Sales ($ mil)

Accretive Health

Provides revenue cycle management solutions to hospital systems.

Technology

$449

Calix Networks

Provides integrated voice/data communications access systems.

Communications

$215

Financial Engines

Provides investment advice for employer-sponsored retirement plans.

Financial

$78

Ironwood Pharma.

Developing drugs that treat gastrointestinal conditions.

Health Care

$32

Meru Networks

Provides wireless LAN solutions to small and large enterprises.

Technology

$67

QuinStreet

Provides Internet-based vertical marketing and media services.

Technology

$275

Solyndra

Manufactures thin film solar panels and mounts.

Energy

$63

Telegent Systems

Designs and markets chips that enable broadcast TV on portable devices.

Technology

$124

Source: RenaissanceCapital.com

While venture-backed IPOs are likely to steal much of the spotlight in 2010, there will be other trends. Private equity sponsors are committed to forging ahead with a steady flow of portfolio companies, particularly with debt maturities closing in and results looking better as recessionary periods are anniversaried. Big hitters like KKR, Blackstone and Fortress have all touted intentions of bringing more companies public. Valuation discounts will be the key to sustaining PE deal flow, though recent IPO activity has shown a propensity on the part of LBO sponsors to lower their pricing expectations.

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2009 was a transition year that should pave the way for increased momentum in 2010 The

Notable PE-Backed IPOs in the Pipeline

 

Company

Business Description

Industry

LTM Sales ($ mil)

Cellu Tissue Holdings

North American producer of tissue products.

Materials

$528

Freedom Group

A leading manufacturer of firearms and ammunition.

Capital Goods & Services

$833

Generac Holdings

A leading provider of residential and commercial generators.

Capital Goods & Services

$628

Graham Packaging

Supplies plastic containers for consumer products.

Materials

$2,292

Language Line Services

Provides on-demand language interpretation services.

Business Services

$301

Sensata Technologies

Former TI sensors and controls business.

Technology

$1,064

Smile Brands Group

Provides business support services for affiliated dental groups.

Business Services

$454

West Corporation

Leading provider of conferencing and call center services.

Business Services

$2,384

Source: RenaissanceCapital.com

In addition to the VC and PE phenomena, investors should expect several large IPOs in the form of carve-outs or spinoffs of government assets, as well as a big demutualization. The Chicago Board Options Exchange finally looks poised to make its long-awaited public debut in 2010 after reaching an agreement with its members in late 2009. US government- owned AIG and GM are also targeting IPOs in 2010.

Finally, billions of dollars are set to be raised overseas. Hong Kong, Shanghai, Brazil and India should see continued healthy levels of capital-raising activity, reflecting their exposure to attractive economic growth and the ongoing globalization of their investor bases. European activity will likely be concentrated around private equity-backed firms and carve-outs, as well as privatizations in Poland and other eastern European countries as cash-strapped governments seek to bolster their balance sheets by monetizing assets.

While 2009 was certainly not a rebound to normal IPO levels, the common theme we saw amongst the stronger deals is that investors are looking for opportunities to invest in growing companies. Our analysis of the US IPO pipeline as well as the broader shadow backlog suggests that there is a significant supply of growth companies waiting to tap the markets, and the strong returns of 2009’s quality growth IPOs demonstrates that there is adequate demand to support it. Even if broader equity market returns are mediocre, 2010 could nevertheless mark the beginning of a strong IPO cycle.

Attribution Policy: The information contained herein is proprietary and copyrighted. The media is welcome to use our information and ideas, provided that the following sourcing is included: RenaissanceCapital.com

Copyright 2009 by Renaissance Capital LLC, all rights reserved. The information and opinions in this commentary were prepared by Renaissance Capital analysts. The report does not constitute an offer to buy or sell any security. Renaissance Capital and/or the IPO Plus Fund (IPOSX) may have investments in securities of companies mentioned in this report. The contents of this report may not be reproduced, stored in a retrieval system, or transmitted in any form without prior written consent.

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Notable PE-Backed IPOs in the Pipeline Company Business Description Industry LTM Sales ($ mil) Cellu Tissue

About Renaissance Capital Renaissance Capital, founded in 1991 and headquartered in Greenwich, CT, is the global leader in providing IPO-focused institutional research and investment management services. The Firm’s investment management services include advising an actively managed IPO mutual fund and offering passive IPO indexes used as the basis for index and ETF products. Find out more at www.RenaissanceCapital.com.

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About Renaissance Capital Renaissance Capital, founded in 1991 and headquartered in Greenw ich, CT, is the