--First offering in more than a month
--Positive reception after Facebook's poor performance
--Three other IPOs expected this week
(Updates with closing stock price, new fourth paragraph on the
last IPO freeze.)
By Lynn Cowan
The chilly atmosphere around the U.S. IPO market finally began
to thaw Wednesday, with the first new stock launched in over a
month rising 13%.
Energy partnership EQT Midstream Partners LP (EQM) closed at
$23.75, up from its initial public offering price of $21. The deal
of 12.5 million units priced at the high end of its expected
range.
The initial public offering's warm reception was a welcome
change after five weeks of deep freeze in the U.S. new-issuance
market, following the disappointing debut of Facebook Inc. (FB) May
18. It sets the stage for the launch of three other stocks this
week: software firm Exa Corp. and biopharmaceutical firm Tesaro
Inc., both Thursday; and cloud-based computer-service provider
ServiceNow Inc. Friday. Exa and Tesaro will be the first Nasdaq
Stock Market IPOs since Facebook's deal struggled with technical
glitches on Nasdaq OMX Group Inc.'s (NDAQ) exchange. ServiceNow is
launching on NYSE Euronext's (NYX) New York Stock Exchange.
The 39-day freeze between Facebook's and EQT Midstream's
offerings is the longest spell without any U.S.-listed IPOs since a
57-day gap from August to October 2011, when broader market
volatility made pricing difficult.
Historically after a freeze in the IPO market, the first
IPO--the so-called icebreaker deal--has shown good returns,
according to Greenwich, Conn.'s Renaissance Capital. These first
deals generated an average first-day return of 20%, compared with
the historical norm of 11%. Over the long run, the IPO research
firm said, icebreaker deals can be very rewarding: Investors seek
to extract stiff discounts after a freeze, so the IPOs have farther
to rise when the broader markets turn positive.
The icebreaker deals Renaissance has researched since 2000--IPOs
that came to market after dry spells of at least 32 days
each--delivered an average three-month return from IPO prices of
64%, compared with a 6% gain on the Standard & Poor's 500-stock
index during the same periods.
Though EQT Midstream's first-day gain is a positive sign for the
U.S. IPO market, its fist-day performance puts it firmly in the
category of "average" rather than a making it a classic icebreaker
deal. Its limited-partnership structure typically attracts
investors interested in dividends rather than momentum players
seeking quick stock pops. At its IPO price, EQT Midstream's
expected annual dividend payout yields 6.7%
Headquartered in Pittsburgh, EQT Midstream was formed by
natural-gas producer EQT Corp. (EQT) to own, operate and acquire
midstream natural-gas assets, such as pipelines. Its initial focus
is on assets in southern Pennsylvania and northern West
Virginia.
It operates gas pipelines, including a 700-mile interstate
system that connects to five other pipelines, and gas-gathering
systems that deliver gas from wells to pipelines. Its system
focuses on delivery into interstate pipelines that serve customers
throughout the mid-Atlantic and Northeastern U.S.
EQT Corp., which still operates midstream assets of its own,
will be EQT Midstream's largest customer. It will also own its
general partner interest; all incentive distribution rights; and a
63% limited partner interest in the newly public company.
EQT Midstream portrays the relationship as an advantageous one;
EQT Corp.'s affiliates include one of the largest natural-gas
producers in the Appalachian Basin, which will use its pipelines.
In exchange for receiving some of EQT Corp.'s midstream assets, EQT
Midstream will turn over most of its IPO proceeds to its parent and
give it general partner and limited partnership stakes.
But the flip side of that is EQT Midstream is dependant on one
company for a substantial majority of its revenue and future
growth, and there are conflicts of interest in having EQT Corp.
serve as a customer, management team and majority owner. EQT
Midstream's status as a limited partnership means EQT Corp. doesn't
owe unit holders the same fiduciary duties as a corporation would
its shareholders.
In the three months that ended March 31, EQT Midstream's total
operating revenue increased 17% to $31 million, and its net income
rose 29% to $11 million, compared with the same period a year
earlier. In 2011, revenue rose 20% to $110 million, while net
income increased 74% to $33 million, compared with 2010.
-Write to Lynn Cowan at lynn.cowan@dowjones.com