Initial Public Offerings Show Price Gains in Third Quarter
Stock prices of initial public offerings improved in the aftermarket during the third quarter, while at the same time the number of IPOs being brought to market declined.
The trend marked a reversal from the first six months, when a heated IPO market brought hundreds of new issues to market, many at high prices relative to their subsequent trading. The opposite happened in the third quarter, where issues went public at the lower end of their expected trading ranges, or were pulled from the market altogether, IPO watchers said.
“Stocks that went public from January through June are down an average of 8.1%,” said Robert Natale, a vice president in charge of new issues at Standard & Poor’s Corp. That compares to a decline in the S&P; 500 stock index of only 2.2%.
However, “new issues have been outperforming (the index) since the end of June, and for the four weeks ended Sept. 4, S&P;’s new issues index has risen 2.6%, while the S&P; 500 went down 0.4%,” Natale said.
Initial public offerings priced below their original offering prices have grown steadily as a percentage of total offerings, according to Securities Data Corp., from only 16% in March to 100% so far in September.
With new issues priced lower, investors have a better chance of seeing them rise in the aftermarket.
“In a perfect world, the IPO group should be up 15%,” said Keith Goggin, a reporter with Going Public: The IPO Reporter. “That’s the benchmark for underwriters. Initial investors should have a bonus for buying into stocks with no trading history.”
Last year’s IPOs achieved results that were almost that good, rising 13%, according to Securities Data. That touched off the run on new issues that started during the second half of 1991 and ended recently. From January through June, corporations going public raised a record $20.2 billion, more than double the $8.4 billion raised last year. March set the record for the year, with 67 public offerings totaling $3.47 billion, excluding closed-end funds.
By contrast, there were seven IPOs thus far in September, and they raised only $151.6 million.
“It’s a cycle,” Goggin said. “First a few IPOs do well, and then companies later in the cycle ask for higher valuations and they all rise, the good ones with the bad, until we have the turnaround.”
Investors lost money in many of this year’s early IPOs. The worst, according to IDD Information Services, has been Vital Living Products, which declined 90% since its offering on March 25. J. W. Gant & Associates was the lead manager for that IPO.
Other decliners include Stac Electronics, brought public in May by Alex. Brown & Sons. It has fallen 76% since then.
Perfumania, a Dean Witter Reynolds offering, has declined 60% since its public offering in April, IDD said.
By contrast, recent new issues have done much better. Zoll Medical Corp., which went public on July 16, has risen 132%, according to IDD. First Boston Corp. was the lead underwriter. Eagle Hardware & Garden, a Montgomery Securities offering, has risen 95% since going public on July 15.
Ten other issues totaling $728 million could be brought to market later this month, according to Bloomberg’s equity calendar. They include Caraustar Industries for $140 million, underwritten by Goldman Sachs, and USX-Delhi Corp. for $102 million, underwritten by Lehman Brothers.
