Nielsen, Demand Media IPOs soar in debuts

Wed Jan 26, 2011 7:15pm EST

* Nielsen shares close 8.7 pct above $23 IPO price

* Demand Media shares 33.2 pct above $17 IPO price

(Adds executive and analysts' comments, background, closing share prices)

By Jennifer Saba and Clare Baldwin

NEW YORK, Jan 26 (Reuters) - Nielsen Holdings, which measures television ratings, and Demand Media, which publishes articles online, rallied on Wednesday in their trading debuts, signaling that demand for media-related IPOs was building.

Nielsen's (NLSN.N) shares rose 8.7 percent from its initial public offering price, and Demand Media's (DMD.N) shares rose 33.2 percent.

Nielsen's IPO, the biggest of the two, is the first of what is expected to be a rush of big private equity-backed IPOs in 2011. Nielsen raised $1.6 billion on Tuesday, nearly a tenth more than expected.

Private equity firms are looking to sell several large companies this year, including retailer Toys R Us [TOY.UL] and pipeline company Kinder Morgan.

Demand Media, an online company that relies on freelance writers to churn out articles and video designed to appear at the top of Internet searches, raised $151.3 million, more than a third above its target.

"The IPO market has continued to improve because the economy is growing," said Nick Einhorn, a research analyst at Connecticut-based IPO research and investment firm Renaissance Capital. "The broader markets have done better, and investors are looking for places to put cash to work."

Investors may not be diving into riskier IPOs, but they do seem to be tip-toeing into them. Bond yields have been low for years, giving portfolio managers an incentive to take more risk to generate higher returns. And the Federal Reserve said on Wednesday it would continue buying bonds to increase the money supply.

"The markets are ready to accept IPOs, and the fear factors have been mitigated to some extent," said David Menlow, president of IPOfinancial.com, an independent research firm.

Companies appear to be taking note of rising investor demand.

Ally Financial is due to hold a meeting on Thursday to talk to bankers hoping to underwrite its IPO, a person familiar with the matter said on Wednesday. [ID:nN26154260]

The board of hospital operator HCA, another private equity-backed flotation, was meeting on Wednesday to consider taking the company public in March, a source familiar with the situation said. [ID:nN26192549]

While the Nielsen deal's positive reception looked like good news for financial sponsors eager to unload stakes in some of their long-held portfolio companies, the share sale was not a home run for the private equity firms that still own the company.

Nielsen was taken private in 2006 in a deal worth just over $10 billion by private equity firms Carlyle Group [CYL.UL], Blackstone Group LP (BX.N), Kohlberg Kravis Roberts & Co [KKR.UL], Thomas H. Lee Partners, AlpInvest Partners and Hellman & Friedman.

Proceeds from the IPO are paying down debt, while the private equity shareholders continue to hold all their Nielsen shares, which they will have to sell over time. The Nielsen deal shows how tricky it may be for private equity firms to sell out of their big investments in the coming months. [ID:nN14198734]

"The fact that the private equity firms weren't selling in the IPO probably helped Nielsen. That's often something that makes investors a little skeptical and makes them more willing to push for a pricing discount," Einhorn said.

Underwriters on the Nielsen IPO were led by JPMorgan and Morgan Stanley. Goldman Sachs and Morgan Stanley led the underwriters on the Demand Media IPO.

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Breakingviews on Nielsen's offering [ID:nLDE70P20W]

Breakingviews on Demand Media [ID:nLDE70P21O]

Reuters Insider on Nielsen link.reuters.com/jus67r

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Nielsen sold 71.4 million shares, representing about 20 percent of the company. The stock's midday price on Wednesday valued the company at just over $9 billion.

Nielsen's TV ratings determine whether TV programs live or die and it also monitors online behavior and retail transactions. Its top 10 clients include Coca Cola Co (KO.N), Nestle SA (NESN.VX), News Corporation (NWSA.O), Procter & Gamble Co (PG.N) and Unilever NV (UNc.AS).

The company has been criticized by some media conglomerates that claim Nielsen's methodology for tracking consumers' viewing habits is outdated and the sample size is too small.

Nielsen uses "people meters", a device connected to TVs, to capture viewing habits. Currently, these meters are installed in more than 20,000 households, said Brad Adgate, senior vice president of research at Horizon Media. There are about 116 million TV-viewing households in the United States, he said.

In November, NBC Universal Chief Executive Jeff Zucker said Nielsen's sample size was a problem, explaining that CNBC's ratings fell after only three people were taken out of a 300-person Nielsen sample.

Nielsen declined to comment.

Technology has also changed media consumption and more people watch TV shows and movies on computers, tablet devices and smartphones. Nielsen is working on ways to monitor TV viewing habits that will take different devices into account.

ICE BREAKER

The Demand Media IPO was seen as something of an icebreaker for more and larger Internet-related deals this year, like discount website Groupon, business network LinkedIn and social games company Zynga.

Demand Media is being closely watched as a test case for a way to inexpensively create content that surfaces high in search results. The company, based in Santa Monica, California, employs 13,000 freelancers whose articles and videos appear on websites like its own eHow and LiveStrong and Gannett Co's (GCI.N) USAToday.com.

Twenty-eight percent of Demand Media's revenue in the first nine months of 2010 came from Google. But last week, an engineer at Google wrote in a blog that Google was taking even stronger measures to combat "low quality" search results from places like "content farms."

"We don't fit the definition of content farms," Demand Chief Executive Richard Rosenblatt said in an interview on Wednesday. He said articles and videos from Demand were written and edited by professionals.

Nielsen shares, which sold at $23 each in its IPO, closed at $25 on Wednesday. Demand Media shares, which sold at $17 each in its IPO, closed at $22.65.

(Reporting by Jennifer Saba and Clare Baldwin, editing by Gerald E. McCormick, Derek Caney and Matthew Lewis)

((clare.baldwin@thomsonreuters.com; + 1 646 223 6189; Reuters Messaging: clare.baldwin.reuters.com@reuters.net)) Keywords: IPOS/ Keywords: IPOS/

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