Back in August, there was lots of talk about whether or not the public markets would accept a highly-leveraged IPO candidate like Avago Technologies. We then heard it again last week as Dollar General prepped its own offering.
Avago did better than Dollar General in terms of its actual IPO pricing, but both companies have traded higher in the aftermarket. So have other leveraged companies like Vitamin Shoppe, Talecris Biotherapeutics and STR Holdings. Overall, PE-backed companies with hefty leverage closed trading yesterday up 6.65% from where their IPOs priced. The only two exceptions this year are RailAmerica (which has tanked) and Emdeon (which is down just a fraction of a percent).
It’s certainly reasonable to argue that many of these companies would trade even higher were they to have lighter balance sheets, but not that high leverage leads to doomed public offerings. This was the topic of my weekly video segment with Reuters, which you can watch below: