Shelves were stocked and the aisles wiped clean as the warehouse-style discount grocery chain Smart & Final Stores Inc. of Commerce opened its doors for an initial public offering last week.
The retailer, backed by Century City private equity firm Ares Management, raised about $160 million in the sixth L.A. IPO so far this year. It’s the busiest year for local public offerings since the recession. However, the overall inventory of local public companies is not increasing; the new ones are roughly offsetting the loss of others.
Others in the class of 2014 are pharmaceutical developer Kite Pharma Inc., car shopping company True Car Inc. and coin dealer A-Mark Precious Metals Inc., all in Santa Monica, as well as Ares and Playa Vista ad tech firm Rubicon Project Inc.
The number of local IPOs has increased as demand for new issues has surged nationwide. Renaissance Capital, a Greenwich, Conn., firm specializing in IPO research, reports there have been 188 IPOs so far this year with as many as 100 more on the way. In all, Renaissance estimates public offerings this year could raise a total of nearly $80 billion, the most since 2000.
Ian Winer, managing director of equity trading at Wedbush Securities Inc. in downtown Los Angeles, said low interest rates have pumped up the stock market and made this a good time to sell stock.
“Right now, I can’t really make any money by buying bonds or putting it into the bank so my options are really equities,” he said.
The six local offerings so far this year already exceed last year, when, excluding publicly traded investment funds, five companies went public: Monrovia drug developer Xencor Inc., Calabasas real estate brokerage Marcus & Millichap Inc., real estate investment company American Homes 4 Rent, West L.A. real estate investment trust Rexford Industrial Realty Inc., and Santa Monica shell company Silver Eagle Acquisition Corp.
Just two companies went public in 2012: downtown L.A. private equity firm Oaktree Capital Group and Santa Monica business development company TCP Capital Corp.
This year’s public offerings have helped stem a steady loss of local public companies over the past few years. The LABJ stock index comprised 173 companies at the beginning of 2012. That number had dwindled to 160 by the beginning of this year. (See Page 78.)
After Smart & Final is added to the index next week, there will be 161 companies, meaning this year’s public offerings have just offset the loss of public companies through acquisition or movement out of Los Angeles County.
Mixed bag
Smart & Final’s IPO came just two years after Ares bought the company from another private equity group, New York’s Apollo Global Management.
The grocer operates 250 stores in the Western United States and 13 in northern Mexico. It earned about $8.2 million in net income last year on revenue of $3.2 billion. The company, one of the oldest in Los Angeles County, was founded in 1871 in Los Angeles as wholesale grocer Hellman-Haas Grocery Co.
David Hirz, chief executive of Smart & Final, said going public is another milestone in the company’s 140-year history.
“It is with pride and excitement that we join the New York Stock Exchange today and mark another milestone in Smart & Final’s rich history,” Hirz said in a Sept. 24 statement marking the company’s first day of trading.
Smart & Final shares priced at $12 and closed their first day of trading at $12.01.
Other companies such as Rubicon Project and Kite have seen shares soar so far this year.
Kite priced its June IPO at $17 per share and ended its first trading day at $26.61. Shares closed Sept. 24 at $26.70.
Eric Schmidt, an analyst at Cowen Securities in New York, said Kite’s was probably the best-received biotech IPO this year. Since its debut, Schmidt said not much has happened, but he expects the company to report positive progress on its drug research in December.
“We’re expecting the next update will continue to be good,” Schmidt said. “There’s still a lot of interest in what Kite is doing and there’s a lot of optimism now for the area of biology they operate in.”
Kite is developing drugs that aim to use patients’ own immune systems to fight cancer.
But while Kite has soared, other newly public companies haven’t fared as well. Rubicon priced its April public offering at $15 but fell below that price later that month and closed Sept. 24 at $12.34. Ares, too, has mostly traded below its May IPO price of $19. Shares closed Sept. 24 at $17.80.
Bryant Riley, chairman of West L.A. brokerage and investment bank B. Riley & Co., said he sees the IPO market opening up, but he wouldn’t call it robust. He said one problem is investors following trends – investing in dot-com companies and clean energy, for instance – rather than steadier, slow-growth companies.
“Many of the companies that went public either through the public markets or through reverse mergers were companies that were playing into more of a concept,” Riley said. “I think people lost money on those so there’s still a bit of a cautious approach.”
