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NEW YORK — Two IPOs with media and entertainment industry tie-ins are on tap for this week. And given that this is the first week of 2011 with new stock market entrants, their pricings and early trading trends could help set the tone for this year’s market debuts.
Media measurement giant Nielsen, the former parent of The Hollywood Reporter best known for its TV ratings data, and Internet media firm Demand Media, which creates cheaply produced evergreen content for its own and other media companies’ sites, are expected to set the final price for their respective IPOs on Tuesday, then start trading Wednesday.
Nick Einhorn, research analyst at Renaissance Capital, an investment management firm that specializes in IPOs, said that any single IPO rarely says much about market trends.
“But both of these are high-profile IPOs,” he said. “If they do well, it will be a positive sign for the IPO market.”
Nielsen is the biggest private equity-backed firm to go public in several years. PE firms KKR, Blackstone Group, Thomas H. Lee Partners and Carlyle Group bought the company in 2006 for $9.7 billion.
Nielsen is expected to price its stock at $20-$22 per share. At the midpoint of that range, it would have a market value of $7.4 billion.
Since it will offer 71.4 million shares in the market debut, the deal would raise about $1.5 billion.
Under ticker symbol NLSN, the company’s stock will trade on the New York Stock Exchange. IPO proceeds will go to the repayment of debt and to general corporate purposes.
Nielsen filed for its IPO in June, then waited for the right market conditions.
John Fitzgibbon of IPOScoop.com predicts strong market interest in Nielsen, but he’s noticed some investor concerns as well.
“They are this week’s flagship, and they have an established and recognizable name,” he said. “But they have a lot of debt,” and some critics say the company hasn’t moved fast enough to update its research methods in the digital age.
CNBC recently pointed out that as part of a partnership with Lance Armstrong for livingstrong.com, the cycling star received a good number of stock warrants in Demand Media, and he and other insiders are looking to sell 3 million shares. An IPO with 7.5 million shares priced at the midpoint of its range would value Demand Media at about $1.3 billion. The deal would raise $113 million, with net proceeds excluding underwriters’ stock sales pegged at $58 million.
Demand Media, which will list on the NYSE under ticker symbol DMD, plans to use the proceeds toward investments in content, international expansion and other uses.
Demand Media should also get “a lot of interest, because there has been a lot of interest in Internet companies and news about Facebook and Groupon,” Einhorn said. “And they are fairly big and fast-growing compared to recent IPOs. The tricky thing or biggest issue is that it is unclear what their long-term success will be. Can they produce more content and get the same number of page views and revenue?”
IPO watchers said they are not aware of other market debuts in the broader media and entertainment space for now.
However, Facebook recently signaled it would go public next year.
Late last year, Chinese film company Bona Film Group launched a U.S. IPO.
Among U.S. entertainment-related companies, movie 3D technology firm RealD, which opened in July with a 22% pop to close its first day at $19.51, was the main industry IPO.
Nielsen and Demand Media will hit the stock market amid a slow and steady recovery in the new-issues market. The years 2008 and 2009 were the worst for IPOs since 1975, according to the National Venture Capital Assn.
After a recent high point in the number of IPO pricings in 2007, when 214 pricings happened, the financial crisis helped cut that number to 31 in 2008, then 63 in 2009 and 154 in 2010. Now the start of 2011 has brought a slew of IPO announcements.
“Naturally, there are underlying forces that seem to be heating up the new issue market,” Fitzgibbon said. “Take a look at the stock market and the last 100 IPOs.”
Echoed Einhorn: “There is a lot of activity right now. When you look at IPOs planned, we are not quite at 2005-07 levels. But could get back there soon. There has been slow, steady improvement.”
Last year, numerous companies canceled their IPO plans amid a volatile market and lack of investor enthusiasm, including such entertainment firms as the Film Department production house, Al Gore’s Current TV and visual effects and animation company Digital Domain.
In-movie theater advertising firm National CineMedia had a solid market start in 2007, and the last major Hollywood IPO that Wall Street folks remember was that of DreamWorks Animation in 2004. Back then, the IPO market was going strong, and DWA shares jumped 38% on their opening day.
“We have seen some smaller film or TV production [or technology] companies come to market,” Einhorn said. “But the film business is a very up and down business, so public investors often want something more predictable.”
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