January 26, 2011 / 12:20 AM / 9 years ago

WRAPUP 2-Nielsen, Demand Media IPOs above targets

* Nielsen IPO raises $1.6 bln, 9.5 pct more than expected

* Nielsen also sells $250 mln of convertible bonds

* Demand Media raises $151.3 mln, 34.5 pct more (Adds details on Demand Media)

By Clare Baldwin and Jennifer Saba

NEW YORK, Jan 25 (Reuters) - Two tech companies raised more than expected in their initial public offerings on Tuesday, in a sign that investors are again paying attention to the market for new issues.

Nielsen Holdings, the consumer measurement firm known for its dominance in TV ratings, raised 9.5 percent more than expected, while Demand Media, the online company that relies on an army of freelance writers to churn out search engine-friendly articles, raised 34.5 percent more.

Nielsen’s multibillion-dollar capital raise is the first of what is expected to be a rush of big private equity-backed IPOs in 2011 and its performance could set the tone for buyout barons looking to exit portfolio companies including Toys R Us, hospital operator HCA and pipeline company Kinder Morgan.

Demand Media is a test case for a new model of inexpensively creating content that surfaces high in search results.

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 took Nielsen private in 2006 in a deal worth just over $10 billion.

Although its revenue has grown, Nielsen has posted net losses since the acquisition.

But in the nine months ended Sept. 30, Nielsen was on track to reverse its loss-making trend, posting net income of $128 million on revenue of $3.8 billion.

While Nielsen’s viewership ratings often determine the fate of a TV programs, it also keeps tabs on online usage and retail transactions. Its top 10 clients include Coca-Cola Co (KO.N), Nestle SA NESN.VX, News Corp (NWSA.O), Procter & Gamble Co (PG.N) and Unilever NV UNc.AS.

Demand Media employs 13,000 freelancers who contribute low-cost articles and videos to its websites including its own eHow and for others such as Gannett Co’s (GCI.N) USAToday.com.

Since its founding in 2006, Demand Media has stoked controversy and intrigue among news editors because of its use of software algorithms to predict what stories readers want and the lifetime advertising revenue value from search engines such as Google Inc (GOOG.O).

But last week, an engineer at Google — a company on whose relationship Demand Media relies for a significant portion of its revenue — wrote in a blog that Google is taking even stronger measures to combat “low quality” search results.

“We hear the feedback from the Web loud and clear: people are asking for even stronger action on content farms and sites that consist primarily of spammy or low-quality content,” Principal Engineer Matt Cutts wrote on the Google company blog.

Twenty-eight percent of Demand Media’s revenue in the first nine months of 2010 came from Google. Any action that would cause Demand Media’s content to show up lower in search results would undercut that.

Demand Media posted a $31 million loss on revenue of $179.4 million in the nine months that ended Sept. 30.

Demand Media and its shareholders sold 8.9 million shares for $17 each, raising $151.3 million. They had planned to sell 7.5 million shares for $14 to $16 each.

Nielsen sold 71.4 million shares for $23 each, raising about $1.6 billion. The company also sold $250 million worth of mandatory convertible subordinated bonds alongside the IPO.

It had planned to sell shares for $20 to $22 each, according to a regulatory filing.

Underwriters on the Nielsen IPO were led by JPMorgan and Morgan Stanley, while Goldman Sachs and Morgan Stanley led the underwriters on the Demand Media IPO. Both companies are expected to begin trading on the New York Stock Exchange on Wednesday. Nielsen will trade under the symbol “NLSN” and Demand Media will trade under the symbol “DMD”. (Reporting by Jennifer Saba and Clare Baldwin; editing by Carol Bishopric, Gary Hill)

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