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October 27, 2012

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State of the MLP IPO Market

MLPs are trailing the broader market if you follow the Alerian MLP Index.  But the 2012 MLP IPO Index (if there were such a thing) is far outpacing virtually anything else.  And while not a 100% sure thing (PDH is the one exception this year), MLP IPOs have almost never been hotter.  The only comparable time period in the history of MLPs was 2007, the year there were 13 MLPs, and the year when 5 of the top 20 MLP IPO pops of all time happened.
After MPLX’s big pop Friday, 2012 now has 5 of the top 20 MLP IPO pops of all time, as shown below.

Here is the list of the last 10 MLP IPOs, including the two this week.  As you can see, the overall average return of the last 10 MLP IPOs has been 19.9%, and average out-performance compared with the Alerian MLP Index is 1564 basis points.

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After next week, when the next two MLP IPOs price, we will have had 11 MLP IPOs, and there will be 9 remaining in the pipeline, but two of those haven’t filed an updated S-1 in 6+ months, and there are probably 2 others that won’t get executed, so the realistic pipeline is probably 5-6 MLP IPOs, which means the MLP IPO backlog is finally thinning a bit from its peak of 15 IPOs on file back in July / August.
I guess that’s a good thing for those MLPs that have yet to launch their IPOs, because there will be a clamoring to recreate MPLX’s success, and not many more opportunities for investors to participate.  Not so much limited supply, but a perception of limited supply and demand that has been heightened by the success of prior IPOs.  If these next few MLPs are priced reasonably, they should trade up almost out of habit.

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