Bloomberg News

Palo Alto Leads Push to Raise $700 Million in IPOs

July 09, 2012

Palo Alto Networks and Kayak Set July IPOs

Kayak aims to raise as much as $87.5 million in its IPO. Photographer: David Paul Morris/Bloomberg

Palo Alto Networks Inc. and Kayak Software Corp. led companies that announced plans today to raise more than half a billion in initial public offerings, a sign the market is recovering from a monthlong drought following Facebook Inc. (FB:US)’s disappointing debut.

Palo Alto Networks is seeking to raise as much as $229 million, while Kayak aims to raise as much as $87.5 million, according to regulatory filings today. Fender Musical Instruments Corp. (FNDR:US), Five Below Inc. and Durata Therapeutics Inc. also set terms for their IPOs, bringing the total to almost $700 million.

Morgan Stanley is leading the IPOs for Kayak and Palo Alto Networks, set to price July 19, data compiled by Bloomberg show. The sales follow the June IPO of ServiceNow Inc., the first technology company the bank took public since leading Facebook’s share sale, which froze the U.S. market for more than a month. While ServiceNow surged in its debut, Palo Alto Networks and Kayak will face investors who are more skeptical of IPO promises from Morgan Stanley, said Bahl & Gaynor Inc.’s Matt McCormick.

“Their only possible solution is to hit the ball out of the park on their next couple launches, and the onus is on them to succeed,” said McCormick, who helps oversee $6.2 billion at the firm in Cincinnati. “Expectations are going to be high and people are going to be looking for issues, and if they can compete positively, that’s a win.”

Fender IPO

Fender, the largest seller of guitars in the U.S., filed today to raise as much as $160.7 million in an IPO to repay debt. Teen retailer Five Below filed to raise up to $134.6 million, while pharmaceutical company Durata disclosed plans to raise as much as $81.3 million.

IPOs globally raised $41.3 billion in the three months ended June 30, 34 percent less than in the same period a year ago, according to data compiled by Bloomberg. At least 50 companies shelved sales as Europe’s debt crisis spread, growth prospects slowed in China and Facebook’s stock sank as much as 32 percent after the IPO.

ServiceNow raised $210 million on June 28, pricing the shares above the planned range. New York-based Morgan Stanley (MS:US), which led ServiceNow’s share sale, is on track to be the top underwriter for technology and global IPOs, according to Bloomberg data.

Internet Firewalls

The more successful the technology offerings, no matter how small, the easier it will be for investors to forgive Morgan Stanley for Facebook’s decline, McCormick said.

Palo Alto Networks said it plans to offer 4.7 million shares for $34 to $37 each, according to a filing, while its shareholders are offering 1.5 million. The company will list under the symbol PANW on the New York Stock Exchange. Morgan Stanley is leading the offering along with Goldman Sachs Group Inc. (GS:US) and Citigroup Inc. (C:US)

Nir Zuk co-founded Palo Alto Networks in 2005. Its firewalls give companies customized control over what their employees can access through the Internet, with products installed at more than 5,300 companies, according to its website.

The midpoint of Palo Alto Networks’s price range values that company at about $2.36 billion, or 11 times sales of $220 million in the 12 months through April 30, Bloomberg data show. That’s almost double the average price-to-sales ratio of 6 for Juniper Networks Inc., Check Point Software Technologies Ltd., Fortinet Inc. and Sourcefire Inc., which Palo Alto Networks names as competitors in its filing, Bloomberg data show.

Online Travel

In its filing today, Norwalk, Connecticut-based Kayak said it plans to sell 3.5 million shares for $22 to $25 each. The stock will list under the ticker KYAK on the Nasdaq Stock Market.

Kayak, an online travel site which first filed to go public in November 2010, delayed its IPO roadshow in late May after Facebook shares plunged 27 percent in their first two weeks of trading, a person familiar with the situation said at the time.

Kayak was founded in 2004 by Daniel Stephen Hafner, the chief executive officer, and Paul English, the chief technology officer. They hold a combined 16 percent of the company’s voting power. The biggest backers are General Catalyst Partners, Sequoia Capital, Accel Partners and Oak Investment Partners.

Valuations

The midpoint of Kayak’s price range would value the company at about $906 million, or 3.7 times sales of $245 million in the 12 months through March 31, data compiled by Bloomberg show. That compares with the average trailing 12-month price-to-sales ratio of about 3 for companies Kayak names as competitors in its filing, including TripAdvisor Inc., Expedia Inc. and Orbitz Worldwide Inc.

Morgan Stanley and Deutsche Bank AG (DBK) are leading Kayak’s public market debut.

Fender and its stockholders are offering 10.7 million shares at $13 to $15 each, according to a regulatory filing today. Fender, based in Scottsdale, Arizona, estimates net proceeds to be about $88.2 million and didn’t disclose a date for the IPO.

Fender, which traces its roots to 1946, makes the Stratocaster, or “Strat,” one of the most popular electric guitars and models inspired by musicians such as Eric Clapton and John Mayer. The company, which increased sales 13 percent to $700.6 million last year, sees growth coming from emerging markets such as China and India as guitar-based music becomes more popular in those nations.

The midpoint of the offering range would value Fender at $369 million, or about 0.5 times sales of $704 million in the 12 months through April 1 and 26 times net income of $13.9 million in the same period, data compiled by Bloomberg show.

JPMorgan Chase & Co. (JPM:US) and William Blair & Co. will lead Fender’s IPO.

To contact the reporters on this story: Sarah Frier in New York at sfrier1@bloomberg.net; Ari Levy in San Francisco at alevy5@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net; Jeffrey McCracken at jmccracken3@bloomberg.net


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