Zipcar, Arcos Dorados soar in debuts
NEW YORK |
(Reuters) - Shares of Zipcar Inc (ZIP.O) soared 56 percent in their Nasdaq debut as investors bought into the leader of the small, but growing, U.S. car-sharing industry.
Zipcar's IPO was one of four debuting in New York on Thursday, with another company's shares -- McDonald's South American franchisee Arcos Dorados (ARCO.N) -- also rising well above their IPO price.
Zipcar finished its first day of trading at $28 and Arcos added 25 percent to close the day at $21.20, after both garnered enough investor demand on Wednesday to sell more shares than originally planned and at a price $2 above the expected range.
"Investors look for solid deals and association with brands, like Zipcar or McDonald's," said Josef Schuster, founder of Chicago-based IPO investment firm IPOX Schuster.
"(Their success) shows the underpinning strength of the U.S. IPO market, which is much stronger than anywhere else in the world and that's quite a reversal from a year ago."
The U.S. market for IPOs has been picking up and the country surpassedChina in global equity capital raising in the first quarter. According to Thomson Reuters data, 26 companies raised $14.9 billion in the first quarter, more than triple what was raised in the year-earlier period.
With the IPO market heating up, concerns have been simmering whether the strengthening of the market could turn into a capital-raising bubble.
"I do not believe this IPO market is frothy. I think the IPO market is healthy. I think investors have been showing discipline," said Paul Donahue, co-head of Americas equity capital markets at Morgan Stanley.
He especially highlighted the recent trend of large, high-profile companies seeking New York listings at what he said were defensible valuations.
DRIVING THE SECTOR
Nearly a decade old, Zipcar is a leader in so called car-sharing, a service that allows people to rent cars at an hourly or daily rate and park in convenient reserved spots -- something especially appealing in urban areas and around college campuses, where fewer people own cars and parking is scarce and expensive.
"It is an infant industry with a lot of upside in both U.S. and internationally, and Zipcar owns this space right now," said Neil Abrams of Abrams Consulting Group Inc, who specializes in car rental and sharing.
Large car rental companies such as Hertz Global Holdings Inc (HTZ.N), Enterprise Holdings Inc EPRIH.UL and U-Haul, owned by Amerco (UHAL.O), have tried to replicate the service, but their rival car-sharing segments are still just a fraction in size compared with Zipcar.
Rising energy prices and expansion of metropolitan areas are giving car sharing and Zipcar a perfect opportunity for growth, analysts said.
Venture capital-backed Zipcar has yet to become profitable, reporting an accumulated deficit of $65 million in 2010 and warning investors it expected a net loss in 2011 as well. But the company's revenue grew 42 percent to $186 million in 2010 after adding 24 percent in 2009.
Zipcars are mostly found on the streets of 14 big cities and 230 college campuses around the United States, Canada and the United Kingdom.
SOUTHERN APPEAL
Arcos Dorados Holdings Inc (ARCO.N) shares attracted investors looking for exposure to a familiar brand in a region with booming growth of consumer spending.
Argentina-based Arcos Dorados is the largest McDonald's (MCD.N) franchisee by size and sales, taking in about 5 percent of all money spent at the hamburger chain around the world in 2010, according to a filing with U.S. regulators.
The company, run by a veteran of the industry in the region, has been setting up to benefit from the growing modernization in Latin America as more and more people adopt faster-paced lifestyles that rely on convenient food.
"A company that obviously has great brand recognition of a company like McDonald's and it's in a wonderful party of the world," said Edward Jones analyst Jack Russo.
Analysts have highlighted Arcos, which comes at a premium to its U.S. parent McDonald's, as a way to invest in a blue-chip brand with exposure to the hot consumer sector in an emerging market.
"In developing markets, there is no question that high-quality consumer stories are appealing to investors," said Donahue of Morgan Stanley, which was one of the underwriters on the Arcos Dorados offering.
"We are in an environment where investors are comfortable with looking at consumer names," he said, adding that developed markets -- if the overall economic picture and growth remains strong -- could see a resurgence in consumer-oriented companies looking to go public as well.
South America has attracted investors in scores, especially with consumer-oriented companies, as they seek to take advantage of growth of a middle-class, incomes and discretionary spending.
In other IPOs debuting on the New York Stock Exchange, shares of TMS International Corp (TMS.N), which provides outsourced services to steel mills, and of Athens-based shipping company Box Ships Inc (TEU.N) both fell 8 percent.
Both deals priced below the expected range on Wednesday.
(Additional reporting by Megha Mandavia in Bangalore and Phil Wahbaand Clare Baldwin in New York; Editing by Steve Orlofsky, Dave Zimmerman)
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