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Did Facebook Kill the Blockbuster IPO?

Social deals are all but dead, and overall IPO size just hasn't been the same


Anyone covering the IPO beat would be hard-pressed to find many more exciting times than the one surrounding the Facebook (NASDAQ:FB) public offering.

Stock of the WeekAhead of the Facebook IPO on May 18, 2012, hype was at a fever pitch, causing the company to boost both its price range and shares issued. At launch, Facebook was a $104 billion company that raised a whopping $16 billion, cementing the IPO bronze with history’s third-largest offering behind Visa (NYSE:V) and Enel SpA (OTC:ENLAY).

And then the bottom fell out.

The deal immediately stumbled at the blocks thanks to a glitch heard ’round the world on behalf of the Nasdaq OMX Group (NASDAQ:NDAQ). Morgan Stanley (NYSE:MS) then got involved, unnaturally propping up the stock price to limit the damage … damage we later found out was partially thanks to MS, who apparently didn’t respect an equal flow of information to all investors.

The deal itself was the highest point for FB shares — in just four months, shares broke $18, less than half its initial price.

The impact on the broader IPO market was immediate and severe — we didn’t see another deal for six weeks later, when ServiceNow (NYSE:NOW) hit the exchanges.

And while Facebook has staged a nice comeback to the $27 area (but still well below the offering price), its IPO’s shadow continues to lurk.

For one, the social space has seen precisely zero hot deals since then — an unfortunate consequence, but a natural one. The Facebook IPO highlighted how quickly a market can turn on a company.

Granted, some of the issues with the Facebook offering were its own. With Facebook shoved into the spotlight, its rocky transition to mobile was laid bare. And because it waited eight years to come public, it was at that point a fairly mature company whose biggest growth years were in the rear-view mirror. It was a classic case of unloading at a market peak, with the spoils going to insiders and VCs.

Facebook obviously didn’t kill off IPOs completely, but the size and scale of offerings have never come close to FB’s. On the upside, though, big deals aren’t altogether dead — this year, we’ve seen seven deals raising $500 million or more:

Company Ticker $ Raised Return*
Zoetis ZTS $2.2 billion +27%
Quintiles Q $947 million +11%
SeaWorld Entertainment SEAS $702 million +37%
Taylor Morrison Home THMC $629 million +21%
CVR Refining CVRR $600 million +23%
Pinnacle Foods PF $580 million +20%
Evertec EVTC $505 million -1%
* Since IPO

All but one did well, and they had little trouble finding institutional investors. These investors are desperately seeking out strong results, and IPOs remain one of the better options out there — so long as the company in question has strong cash flows and decent growth prospects. And many of these are attractive in that they have less chance of being affected by a sudden change in the market, unlike the tech sector.

So going forward, we probably won’t see many social deals hit the market, and it’s even more doubtful that they’ll ever be classified as “hot IPOs.” Instead, expect un-sexy deals to be all the rage. Institutions still have large sums to put to work, as do international investors and sovereign wealth funds, and deal appetite is returning.

In fact, I don’t think it’s out of the question to think we might see an IPO or two around the $10 billion mark — bred by the likes of Blackstone (NYSE:BX) and KKR (NYSE:KKR). Both were striking mega-deals before the financial crisis, including Hilton ($26 billion) and First Data ($29 billion), and now seems like the perfect time to try to bring those companies back to public markets.

But will we see another Facebook anytime soon? Probably not.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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