Timing is everything in the IPO market, and the timing could not have been worse for ADS Waste Holdings Inc.’s filing for an initial public offering.
The parent company of Advanced Disposal filed its IPO plan Friday afternoon, Aug. 21, as the stock market was in the midst of its biggest meltdown in four years.
Even before this so-called market correction, 2015 had been a sluggish year for IPOs. According to IPO market research firm Renaissance Capital, the number of IPO filings so far this year is 32 percent below last year’s pace, and the number of IPOs that have been priced is down 31 percent.
Very few industrial companies have gone public this year. The health care sector has dominated the IPO market with 58 of the 131 stocks to get priced, Renaissance said.
The stock market’s recovery later last week doesn’t necessarily help the IPO outlook, because volatility isn’t good either. A stable market is the best environment to bring a new stock to Wall Street.
ADS has a very stable business, as the company said in its IPO filing. Its waste management operations have “historically generated consistent revenue growth across economic cycles.”
Unfortunately, ADS can’t do anything about stock market cycles, so it will be interesting to see if the company will be able to bring its IPO to the market in the coming months.
The filing lists a large group of well-known underwriters for the IPO, led by Deutsche Bank Securities, Credit Suisse and Barclays.
ADS, headquartered in the Nocatee development in St. Johns County, provides waste disposal services for 2.8 million residential and 202,000 commercial and industrial customers in 18 states. It reported revenue of $685.5 million and operating income of $37.7 million in the first six months of this year.
The company is owned by private investors led by Highstar Capital, which plans to continue owning a stake in the company after the IPO. ADS intends to use proceeds from the stock sale to pay off debt.
The IPO filing did not say how much of the company will be sold to public stockholders and how much stock would be sold, but it did say the offering could be as much as $100 million.
SunGard glitch hits fund markets
Just two weeks after SunGard agreed to a $9.1 billion buyout by Jacksonville-based Fidelity National Information Services Inc., SunGard was back in the news last week, but in a negative way.
In the midst of the market meltdown, Bank of New York Mellon Corp. reported that a glitch in a SunGard computer system left it unable to process the net asset values of certain mutual funds and exchange-traded funds.
According to the Wall Street Journal, BNY Mellon is the world’s largest fund custodian, so the glitch had a major impact on the market for those funds.
BNY Mellon provided regular updates through the week and said it was working with SunGard to catch up on the data. However, as of Friday, the system was still behind schedule.
SunGard remained silent on the problem for two days after it was brought to light by BNY Mellon, but finally issued a statement Thursday.
It said the glitch was caused by “an unforeseen complication resulting from an operating system change performed by SunGard on Saturday, Aug. 22.”
SunGard said the problem was not the result of any unauthorized system access or the market’s turmoil last week.
“We at SunGard apologize to BNY Mellon for the adverse impact this unfortunate incident has had on its operations and clients,” CEO Russ Fradin said in the statement. “We are committed to restoring the trust placed in us by BNY Mellon and all of our valued customers.”
SunGard is not yet a part of Fidelity National Information Services, or FIS. The companies hope to complete their merger during the fourth quarter.
FIS stock gives back gains
The merger announcement sent FIS’ stock to new highs two weeks ago, as investors liked the combined potential of the two financial software companies. However, FIS lost those gains in the market selloff, falling $5.34 over two trading days to $65.97.
That drop came before BNY Mellon revealed the SunGard glitch on Tuesday.
The good news, according to RBC Capital Markets analyst Daniel Perlin, is the loss of the merger “pop” created a buying opportunity. He upgraded his rating on FIS from “sector perform” to “outperform.”
Perlin said in a research note that the pullback in the stock and his “increased conviction” in earnings estimates for the merged company prompted his upgrade.
“We believe FIS offers investors better than average visibility into fiscal year ‘16, as our estimates of SunGard cost synergies, debt repayment, and possible revenue synergies could all prove conservative,” he said.
Analysts see CSX rebound
CSX Corp.’s stock has been down all summer, even before the recent meltdown, but that has some analysts expecting a rebound.
In a research report Tuesday morning after the market’s worst day, Goldman Sachs analysts listed the Jacksonville-based railroad company as one of 25 “oversold domestic revenue stocks.” CSX’s stock was down 26 percent over three months at that point, the report said.
“Thematically, we strongly advocate owning stocks with high domestic revenue and avoiding stocks with high international sales. Simply put, firms with high U.S. sales will experience limited impact on their top and bottom line from economic weakness in China,” the Goldman Sachs analysts said. Those firms include CSX.
On Thursday, Stifel, Nicolaus analyst John Larkin upgraded his rating on CSX from “hold” to “buy” after the stock had dropped nearly 18 percent just since its mid-July earnings report.
“CSX is the best performing eastern railroad year-to-date. The company has continued to exhibit operational improvement (in margins),” Larkin said in his research note.
Larkin said the continuing drop in coal shipments by CSX is the company’s “black eye,” and he does not expect an improvement this year. But he said the recent drop in the stock is “more macro related versus from a railroad-specific catalyst.”
St. Joe defies the market
During the market’s worst day last Monday, one stock of local interest actually showed a gain (discounting a couple of low-priced stocks that rose by a penny).
The St. Joe Co. rose by 49 cents last Monday to $17.38, after it made a tender offer to buy shares from current stockholders.
St. Joe announced the tender offer to buy up to 16.7 million shares of its stock from shareholders at $18 a share late on Friday, Aug. 21, and Monday was the first trading day after the offer.
The company has been sitting on a pile of cash since selling its 4,057-acre RiverTown community in St. Johns County to Mattamy Homes last year for $24 million, and a much bigger sale of timberland in the Florida Panhandle.
It decided the best use for some of that cash would be to buy back shares, and it is going directly to stockholders to see if they want to tender their shares to the company.
St. Joe said in a Securities and Exchange Commission filing that the 16.7 million shares represent about 18.2 percent of all of its outstanding shares.
The stock sale could give St. Joe Chairman Bruce Berkowitz greater control over the company. Berkowitz’s company, Fairholme Capital Management, owns 26.8 percent of St. Joe’s stock and his stake could increase to 32.7 percent if all of the 16.7 million shares are tendered, the filing said.
APR Energy reports first-half loss
APR Energy plc last week reported a loss for the first half of this year, as expected, and also said it is attempting to renegotiate its loans because of the danger of a breach of loan covenants.
Jacksonville-based APR builds interim power plants around the world and it has had to take significant write-offs recently because of projects in risky countries, such as Libya and Yemen.
The company said revenue in the first half of this year dropped 52 percent to $122.2 million, mainly because of the termination of a project in Libya.
APR had an adjusted net loss of $40.3 million, or 43 cents a share, for the six-month period.
APR said it could breach its loan contracts by Sept. 30, so it has been negotiating with lenders and sees a “reasonable prospect” for a successful renegotiation or refinancing.
“It was a particularly challenging first half of 2015 as the company readjusted to the early termination of its project in Libya and controlled shutdown in Yemen,” CEO Laurence Anderson said in a news release.
“Our pipeline of opportunities is solid, but many projects have been slower than expected to materialize and we expect near-term lumpiness in our markets to continue. In response to the financial impact of these challenges, we have recently instituted strict cost controls, and enhanced discipline around spending and inventory, and we have actively been engaged with the group lenders regarding the expected covenant breach at the end of the third quarter,” he said.
Interline deal completed
The Home Depot Inc. last week completed its $1.625 billion acquisition of Jacksonville-based Interline Brands Inc.
The home improvement retailer closed the purchase of the Jacksonville-based distributor of maintenance, repair and operations products just a month after announcing the agreement. Home Depot had said it expected to complete the deal sometime during its fiscal third quarter, which ends on Nov. 1.
Home Depot expects the addition of Interline to increase its earnings per share for the rest of this fiscal year.