CORPORATE SCORECARD 2011

Equities: Back in the Running

, The American Lawyer

The highly anticipated "great recovery"of the American economy in 2010 turned into the humdrum recovery of 2010. Key indicators, such as unemployment, which stubbornly averaged 9.6 percent for the year, remained challenged. But there was a sector of the economy that came close to living up to the hype: equity markets.

Not only did the Standard & Poor's 500-stock index and the Dow Jones industrial average record impressive gains in 2010 of 12.8 percent and 11 percent, respectively, but domestic initial public offering activity was also relatively strong, with volume increasing from 63 IPOs in 2009 to 154 IPOs in 2010, and total proceeds rising nearly 77 percent, to $38.7 billion in 2010, according to statistics compiled by Renaissance Capital LLC.

The IPO market "has come back significantly," says Alexander Cohen, cochair of the capital markets practice at Latham & Watkins, "but it remains a challenging and sometimes choppy market." (In 2010 the number of IPOs Latham handled as managers counsel rose to 45, from 34 in 2009.)

A key reason for the growth was the record number of China-based company IPOs debuting on U.S. markets; there were 40 China IPOs in 2010, up from nine in 2009. These companies represented a cross section of industries, and they generally found a receptive audience among investors in U.S. markets, in part because of a dearth of homegrown options. "In 2010, IPOs coming from China were by far the dominant player in the market, and the reception was good because you had people ready to invest," says David Goldschmidt, a corporate finance partner at Skadden, Arps, Slate, Meagher & Flom. Last year Skadden was involved in the IPOs of more than a dozen China-based companies, including Youku.com Inc., an Internet TV company listed on the New York Stock Exchange, E-Com­merce China Dangdang Inc., a business-to-consumer e-commerce company listed on the NYSE, and AutoNavi Holdings Limited, a provider of digital navigation and location-based solutions listed on Nasdaq.

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The General Motors Company offering was the other high point in 2010. The IPO "was a unique situation," says Richard Drucker, a partner at Davis Polk & Wardwell, which represented the underwriters in the GM deal. "It was the sale of equity by the U.S. Treasury of a blue-chip company that had once been widely held, which contributed to the enthusiasm that investors had for the security," says Drucker. He adds, "There were a lot of investors who wanted to have 'new GM' in their portfolio." (Joseph Gromacki led the Jenner & Block team advising GM.

Another car company IPO in 2010 was more indicative of the year's typical deals. Tesla Motors, Inc.'s venture fund–backed IPO raised $266 million in June, which was more in line with the $251 million on average that was raised by U.S. IPOs in 2010. The Tesla deal was also part of an increase in venture-backed IPOs in the United States. While 12 venture-backed deals raised $1.3 billion in 2009, 61 deals raised $6 billion last year. Joshua Bonnie, a partner at Simpson Thacher & Bartlett, which represented underwriters in the Tesla IPO, says that the deal was more representative of the smaller deals that were completed in 2010.

Private equity funds also found some receptivity to their offerings in 2010. The number of private equity-backed IPOs increased in 2010 by nearly 73 percent, to 38, versus last year; over the same period, proceeds increased almost 48 percent, to $9.6 billion. But the overall picture was somewhat mixed. Seventy percent of private equity-backed IPOs priced below their expected midpoint in 2010, according to Renaissance Capital. Cleary Gottlieb Steen & Hamilton was involved in several private equity–backed IPOs, including RigNet, Inc., an oil field communications provider. RigNet lowered its price and still declined in early trading. Cleary partner Jeffrey Karpf says that even during times when markets are less predictable, IPOs are still attractive because they allow "investors to monetize investments and get out of positions." (RigNet shares rose above the IPO price in the following months.)

Looking at IPO activity from a global basis, the numbers are even more impressive. IPOs raised $235 billion, the second-highest amount on record and $129 billion more than in 2009, according to Renaissance Capital. It was a big change from the heart of the recession, when the global IPO market tanked. After reaching peaks of $265 billion in proceeds from 555 deals in 2007, IPO activity nose-dived in 2008 to $81 billion in proceeds from 118 deals. A nascent recovery that started in 2009 blossomed in 2010.

Along with the U.S., the Asia-Pacific markets also had a good year. There were 315 IPOs, a record number, and they raised $156 billion in proceeds, according to Renaissance Capital. Included among those IPOs were some major issuances, such as American International Assurance Co., Ltd., which was listed on the Hong Kong Stock Exchange, and the Agricultural Bank of China, which raised over $22 billion on Hong Kong and Shanghai markets. A Debe­voise & Plimpton team headed by partner John Vasily advised AIG on the IPO, which came as part of the insurance conglomerate's efforts to repay a government bailout. Vasily says the massive deal, which ultimately raised $21.5 billion, required a great deal of heavy lifting because of the role of the federal government and the lingering effects of the economic downturn.   

Illustration by Eva Vazquez