How hard is it to put a price on mac ’n’ cheese? Clearly, it was tougher than Credit Suisse and JPMorgan, the underwriters on the initial public offering of Annie’s, bargained for. Shares of the humble pasta and organic food maker have doubled since trading opened on Wednesday. And that’s not the only U.S. debut investors are devouring. Online advertising firm Millennial Media stock also nearly doubled when it launched on Thursday. More deals are teed up than the market has seen in a single week for over a decade. But there’s still reason for the enthusiasm to be curbed.
All the froth is more a sign of recovery than exuberance. After all, the first quarter has been a game of two halves. Many deals struggled early. In February, for example, 69 percent of IPOs priced below the range bankers were pitching to investors, according to Bank of America Merrill Lynch. Some 10 deals have been withdrawn so far in 2012, too, compared with just six in the same period a year ago.
March has been more buoyant, thanks to encouraging news on the U.S. economy, bank stress tests and agreement on the Greek bailout. Nevertheless the IPO market’s resurgence is still in its early days. For one thing, money has actually been flowing out of equity mutual funds of late. And most new listings have been pretty small. Having bumped up the price twice this week, Annie’s sold just $95 million of stock.
Only three companies this year have sold more than $300 million in shares – and all of those have been over the past two weeks. Car parts manufacturer Allison Transmission was the largest, at a relatively modest $690 million. That’s a far cry from the $5 billion or more that Facebook aims to sell in May. The feverish pitch around the social networking giant is creating its own unique ecosystem of demand. But the extra time to stabilize the recovering market for new listings should also help the company and its advisers serve up a more sensibly valued IPO.