Why This Year's Initial Public Stock Offerings Have Fared So Poorly : Securities: Many of the IPOs were hurt when investors grew jittery about the market.

SPECIAL TO THE TIMES

When Day Runner Inc. started selling its stock to the public this year, it had every reason to feel confident.

Its profit history was sound--four consecutive years of earnings gains. And it dominated the market for its product: paper-based personal organizers.

On March 11, the Fullerton-based company offered its stock at $15 a share, a price above the company's original expectations yet not prohibitively high for small investors. Four months later, however, the company's stock has lost nearly 12% of its value, closing Friday at $13.25 a share.

Company executives say they are a bit confused: They have had no internal disputes, made no dire forecasts. And first-quarter earnings were up 24%.

Day Runner has met the same fate as other companies that began public trading this year, especially those on the NASDAQ market. A new year's boom in stocks of companies rushing into the market has slowed to a crawl, and 1992 is not living up to expectations that it would become a record-breaking year for initial public offerings, or IPOs.

As for Day Runner, it finds itself in a tough, crowded market where buyers are selective. These new companies find that their share prices are volatile, as the stock often is thinly traded and can be tied to the whims of just a small number of institutional investors.

"The stock's been trading all over the place," said Mark Vidovich, Day Runner's chief executive. "Why does the market do what it does? The heck if I know."

What a difference a few months make. Earlier this year, stock investors were jumping at the chance to turn a profit on IPOs. By midyear, more than 300 corporations had gone public, compared to only 130 in the same period a year earlier, according to Sutro & Co., an investment banking and underwriting firm in Los Angeles. In California, 57 companies went public, compared to 30 in the same time a year earlier.

"There was kind of a feeding frenzy in the first quarter," said Stephen Koffler, executive vice president of Sutro. One company would jump in and get a high valuation for its stock, he said, then another would see that success and do even better.

Fueling the frenzy was a bull market on Wall Street and tight bank credit, which dimmed the likelihood of securing a loan. Companies turned to Wall Street as a source of funding for expansion as well as to retire debt, giving up their privacy for the opportunity to raise cash. In that way, original investors and venture capitalists could realize a profit while still keeping an ownership stake.

"There are a lot of companies that went public that didn't need to," said Steve DeLuca, director of research at Cruttenden & Co. "They saw the valuations and said: 'Let's go!' I don't blame them. When you can just pile cash up, why wouldn't you do it? You got an opportunity you might not see for another two years."

The bulk of those IPOs came in the first three months of the year. The rush peaked in March, when 19 companies went public in California. By mid-June, however, the pace had dwindled considerably to only half a dozen in the state.

"There was just too much up the pipeline," said Kenneth Dennard of Morgen Walke Associates, an investor relations firm in San Francisco. "You just knew it was going to come to an end."

The reason: Investors grew jittery about the market, and the new kids on the block were the first to take a tumble. Catalina Marketing of Anaheim is one of the few California companies to go public this year that is now trading at a higher price per share than at its initial offering.

"Our timing was impeccable," said Joseph P. Proctor, the company's senior vice president for finance. "I'd like to take a lot of credit for it, but I think we were lucky. We've weathered the storm pretty well."

Catalina, which operates an in-store electronic marketing network at supermarket checkout lines, began trading on March 26 at $20 a share, raising nearly $14 million. It is now trading at about $25.

Why has Catalina done well while others have not?

Investors "sell what they can sell, or they make very arbitrary decisions," said Richard Smith, chief underwriter at Montgomery Securities in San Francisco, which took Day Runner public. "It's hard to find a sector that is immune to the malaise in the new-issues market."

One of Kenneth Dennard's clients, Enhanced Imaging Technologies Inc. in Irvine, is just the kind of company that investors have been shying away from lately: newly public and biotech. The company, which makes specialized films for hospital laboratories and screen filters for computers, went public on March 3 at $12 a share. Now it is down to $10.

"We can't get anyone to look at our company because analysts already have stacks and stacks of IPOs on their desk," Dennard said.

The problems with new biotechnology stocks were underscored one trading day in late June, when it was, as Dennard puts it, Enhanced Imaging's turn at the guillotine. Apparently one portfolio manager wanted to dump all health-care stocks. Because Enhanced Imaging was young and thinly traded, few buyers were interested, and its share price dropped nearly $1.

"There didn't have to be negative news," Dennard said.

The end of the boom for new offerings was not a surprise. Abbey Healthcare Inc., a provider of home health care services, sensed a glut of offerings coming. The company, based in Costa Mesa, made the final decision at the end of January to go public. The offering took place just a month later at $12.50 a share, and the company raised $36.5 million. The stock now trades near $11.25.

"We knew the window was closing, so there was a sense of urgency to move fast," said Michael C. Miller, chief operating officer of Abbey Healthcare in Costa Mesa. "We just got in under the wire. Now there's an oversupply. Everyone's kind of . . . waiting for an opening. There just isn't the enthusiasm for health care that there was six months ago."

Not all companies got in soon enough to get the valuations they wanted.

Imperial Credit Industries Inc., a Newport Beach mortgage banking subsidiary of Imperial Bank of Los Angeles, went public on May 18 at $8 a share, raising $17.1 million. The price ticked up for five days then dipped sharply to about $7 as speculators bought and sold the stock quickly.

This month it has shot up to about $13, the price the company thought it should have fetched at the outset, said Chairman H. Wayne Snavely. Coming off a weak first quarter, the company posted a second-quarter net profit of $4.3 million, a sevenfold increase over the same quarter last year. That news, predeced by an aggressive buy recommendation from a securities dealer, have driven stock upward, Snavely said.

Should the company have waited before offering the stock? "We've talked a lot about that," Snavely said. "We could have waited, I guess; but sometimes you wait and the price goes down."

Other companies have been postponing IPOs indefinitely. Smith of Montgomery Securities said some analysts are predicting that new public offerings will pick up after Labor Day. But he doubts that.

"The market will get better when it gets better, not when a calendar day is flipped," he said.

And the timing must be right for the company as well as the market. MicroProbe Corp., a Garden Grove firm studying ways to use DNA molecules for disease identification, considered a public offering early this year but decided to stay on the sidelines.

"No matter how good the market is, it has to be a good time for the company," said Greg Sessler, MicroProbe's chief financial officer. "The public markets are not very forgiving when mistakes are made or expectations are not met."

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