Home Business Refresher: Small And Mid Cap IPOs In 2013

Refresher: Small And Mid Cap IPOs In 2013

Shares in Zulily Inc (NASDAQ:ZU), a website offering outsized discounts on clothing, were offered at $22 in the company’s recent Initial Public Offering (IPO). The stock made a sizzling debut on listing – opening for trade at $39. It currently trades at $35.07, a solid 59% higher than what shareholders paid for it in the IPO. The company raised only $253M in the IPO but its market capitalization is $4.28B.

Is the wildfire in stocks spreading to small and midcap IPOs? Is history from the tech bust in 2000 going to repeat itself?

IPOs via ETFs

That may or may not happen, but investors can certainly play the IPO game through a hot new route – an ETF dedicated to IPOs, such as the First Trust IPOX-100 Index Fund (ETF) (NYSEARCA:FPX). Investors can now get exposure to a wide cross-section of IPOs through a single ticker, and beat the broad market indices in the bargain. Check out the chart below (Source: ETF Database):

FPX has outperformed both the market indices by a wide margin since the bottom in 2009.

Small and midcap IPOs – 2013

But Zulily Inc (NASDAQ:ZU) above is not an isolated case. Small and midcap IPOs have delivered some eye-popping returns during 2013.

Citi North America strategists Scott T Chronert and Louis L Odette put small and midcap IPOs under the lens in their study ‘IPO Roll Call’ of November 22, 2013.

The best small and midcap (SMID) IPOS in 2013…


…and the worst


“Tech and Consumer tend to dominate the top performers, with no Health Care deals on the top ten list. On the other hand, there are several Health Care deals among the worst performers, along with a balance of Tech issues. Additionally, for all of the Financials IPO action, only one makes the top ten list,” observe the Citi strategists.

Key SMID IPO trends

Citi’s study encompasses IPOs that had a size in the range of $50M – $2.5B. In this range there have been 165 issues during 2013, raising $40B approximately. Historical trends in terms of deal ‘size’ and deal ‘count’ are shown in the graphs below:


We can see that 2013 is closing in on the highs witnessed in 2007, but is not quite there yet.

Sector-wise performance

Citi’s report also analyzes the sector-wise returns received from 2013 SMID IPOs:


“Interestingly, the most active deal flow sectors, Financials and Health Care show lower median returns, while Industrials has the greatest disparity between average and median returns. Thus, most activity has not implied the strongest returns, while overall deal performance has been influenced by a smaller number of significant outperformers,” observe Citi.