Zynga IPO May Cap Busy Week for U.S. Offerings

By Lee Spears - Dec 12, 2011 8:24 PM GMT+0700

Zynga Inc. and Michael Kors Holdings Ltd. are leading the biggest week for U.S. initial public offerings in nine months, betting their surging sales will attract investors.

Zynga, the largest maker of games on Facebook, luxury- clothing designer Kors Holdings and nine other companies are seeking as much as $3.8 billion in IPOs this week, data compiled by Bloomberg show. That’s the most since the five days starting March 7, when HCA Holdings Inc. raised $4.4 billion.

Zynga’s management team, led by Chief Executive Officer Mark Pincus, has been telling investors in roadshow presentations that the company is working on its biggest-ever pipeline of online games. Zynga’s sales more than doubled in the nine months through Sept. 30, while Kors Holdings’ revenue jumped more than 60 percent in its first half, even as consumer confidence sank to the lowest level since the recession.

“These are companies that are experiencing very robust secular growth,” said Paul Bard, director of research at Greenwich, Connecticut-based IPO research and investment firm Renaissance Capital LLC. “These are the types of deals that are less impacted by what we’ve seen in the broader macro environment.”

Offerings began to dry up in August as the sovereign-debt crisis engulfed Europe and the U.S. received its first-ever credit downgrade. Even with companies from Groupon Inc. to Angie’s List Inc. completing share sales since November, more than 200 IPOs are still on file with U.S. regulators to raise a total of about $49 billion, according to Renaissance, the most in more than a decade.

Asia Deals

While deals in Asia have also rebounded, with offerings raising at least $5.7 billion in Hong Kong last week, some of the biggest IPOs priced at or near the low end of their proposed ranges. Chow Tai Fook Jewellery Group Ltd. raised HK$15.8 billion ($2 billion) on Dec. 9 selling its shares at the low end of a HK$15 to HK$21 range, people with knowledge of the matter said. New China Life Insurance Co. raised HK$10.2 billion selling shares at HK$28.50 each after offering them for HK$28.20 to HK$34.33.

Nexon Co., the Tokyo-based maker of online social games, set its IPO price of 1,300 yen ($16.74) per share on Dec. 5 and will begin trading on the Tokyo Stock Exchange on Dec. 14, according to Bloomberg data.

Hong Kong Offerings

At least four companies, including Guodian Technology & Environment Group Co. and Beijing Jingneng Clean Energy Co., are seeking to sell $1 billion of stock in IPOs scheduled to price in Hong Kong this week, Bloomberg data show. That contrasts with Europe, where the amount raised in offerings since August has slumped more than 85 percent from the same period a year earlier.

Zynga plans to offer as much as $1 billion of stock selling 100 million shares for $8.50 to $10 apiece on Dec. 15, according to a regulatory filing and Bloomberg data. The $7 billion valuation Zynga seeks at the high end of that range is 6.8 times sales in the year through Sept. 30, or more than triple game maker Electronic Arts Inc.’s (ERTS) price relative to sales in the same period, data compiled by Bloomberg show.

“They have a good revenue stream and are diversifying their revenue streams,” Akram Yosri, managing partner of Dubai- based 3i Capital Group, said after leaving Zynga’s roadshow in New York last week. His firm oversees about $1.4 billion.

Zynga’s Prospects

Zynga, which has 54 million daily active users that play games for 2 billion minutes per day, is working to keep its lead over Electronic Arts, which bolstered its own online services by purchasing PopCap Games this year. Redwood City, California- based Electronic Arts had a market value of $7.3 billion, or 1.9 times trailing 12-month sales, as of Dec. 9, according to Bloomberg data.

Zynga’s games, featured on Facebook Inc.’s social- networking site, include “Mafia Wars” and “FarmVille.” Its offering is being managed by Morgan Stanley and Goldman Sachs Group Inc. (GS) The stock will list on the Nasdaq Stock Market under the symbol ZNGA. Facebook is also weighing an IPO that may value the company at more than $100 billion, a person with knowledge of the matter said last month.

Kors Holdings, whose products include clothes, fragrances and beauty items, is seeking as much as $792 million Dec. 14, offering 41.7 million shares at $17 to $19 apiece on behalf of existing stockholders. The Hong Kong-based company, founded 30 years ago by designer Michael Kors, will receive no proceeds. Kors himself, the largest individual investor, plans to trim his stake to 8.6 percent from 12 percent.

Michael Kors

The midpoint of the offering range would value Kors Holdings at $3.4 billion, or 3.4 times sales of $1 billion in the 12 months through Oct. 1, its filing shows. Coach Inc. (COH) trades at about 4.3 times sales over the same period, and Ralph Lauren Corp. is at about 2.1 times sales.

Kors Holdings plans to more than double stores over the “long term,” according to its regulatory filing. Sales amounted to $548.7 million in the six months through Oct. 1, compared with $340.9 million a year earlier.

“There is, as there should be, upside to the investor, provided the company executes on a plethora of growth opportunities with continued improvement to operating margins,” said Jeffry Aronsson, chairman of New York-based Aronsson Group LLC, which helps develop fashion brands.

Kors Holdings’ operating margin widened in the year ended April 2 to about 18 percent, according to Bloomberg data. Rivals Coach and Ralph Lauren held steady from year-ago levels at 32 percent and 15 percent, respectively.

Morgan Stanley, JPMorgan Chase & Co. (JPM) and Goldman Sachs are leading the offering for the clothing designer, whose shares will trade on the New York Stock Exchange under the ticker KORS.

Jive’s Offering

Jive Software Inc., the maker of social-networking software for businesses, aims to raise as much as $117 million in its IPO. The planned sale of 11.7 million shares for $8 to $10 apiece is scheduled for today, Bloomberg data show.

The top end of the offer range would value Jive at $573 million, or 8.3 times sales in the year through Sept. 30. That’s more than double the ratio of 3 for Microsoft Corp. (MSFT) and 2.2 for International Business Machines Corp., both named as competitors in Jive’s IPO filing.

Jive, whose software lets employees collaborate on projects, may benefit as larger technology companies snap up purchases in cloud-computing to spur growth. SuccessFactors Inc., whose programs manage employee performance, is fetching $3.4 billion, 52 percent more than its public market value, in an acquisition by SAP AG announced Dec. 3. Oracle Corp. agreed to buy RightNow Technologies Inc. for $1.5 billion in October.

‘Strategic Interest’

“It shows there is strategic interest in these types of companies,” Renaissance’s Bard said.

Morgan Stanley (MS) and Goldman Sachs are leading the offering for Jive, which will trade on the Nasdaq under the symbol JIVE.

Stocks that have made public debuts in the U.S. this year have declined an average of 8.6 percent from their IPO levels through Dec. 9, according to Bloomberg data. The monthly amount raised in U.S. initial offerings this year peaked in May at $6.3 billion before bottoming at $34 million in September. The Standard & Poor’s 500 Index has recovered 14 percent, helped by improved U.S. economic data, after falling to a one-year low Oct. 3.

“It’s been a slow second half,” said Bard. “Underwriters and bankers are incentivized and motivated to do as much deal flow as they can.”

To contact the reporter on this story: Lee Spears in New York at lspears3@bloomberg.net

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net