Will Donna Karan Offering Wear Well?
New York fashion house Donna Karan International will go public this week in what could be a bellwether for the IPO market.
IPOs have attracted much investor attention recently, but there are signs that may change. Last week saw lackluster trading and some valuation cuts for companies getting ready to go public this week. Forty companies were scheduled to go public this week, but analysts say some underwriters may pull some deals, particularly if the widely anticipated Donna Karan IPO does not fare well.
“The scales have tilted dramatically,” said David Menlow of Springfield, N.J.-based IPO Financial Network.
For instance, Broadvision was priced at $7, below its expected range of $8 to $10. It closed at $7.125 on Friday, but at times it was trading below the offer price. Sabratek was also priced $1 below its range. It closed up $1.25 at $11.25.
“We’re looking at 40 IPOs next week and 77 total stock offerings (including secondary deals) next week. Even a good market would have trouble handling 77 deals,” Menlow said.
During the second quarter, new issues raised a record $15.8 billion, according to Securities Data Co., and more are expected as the avalanche of registrations continues.
“I think we are going into a difficult period. Some of the pricings have been too high, and instead of pricing above the range, pricings will be within the indication and the indications won’t be quite so bullish,” said Peggy Farley, chief executive at Amas Securities.
Ryan Jacob, director of research at IPO Value Monitor, said the real test will come when Donna Karan International Inc. goes public.
“The sector has been very strong, and Donna Karan is a name people can get excited about,” Jacob said. “How Donna Karan is accepted is a good indicator. If it opens up 10-15 points, then I think the IPO market is alive and well. If it opens flat to moderately up, then I think we could say that we have seen a cooling down in the market.”
Donna Karan International withdrew IPO plans three years ago because the stock could not fetch as high a price as chairwoman Karan wanted. Weak sales of its clothing at the time forced valuations down.
“Donna Karan has a great deal of draw because of her name. The IPO will go over very well,” said Kurt Barnard, president of Barnard’s retail marketing report.
But Barnard expressed concern about the stock’s prospects. “Real growth is not in the cards,” he said. He cited saturation in the clothing market and strong sales competition from other clothing lines.
Some analysts say Donna Karan could again be devalued ahead of a planned offering because of poor market conditions.
Analyst William Smith of Renaissance Capital Corp. was not ready to say the IPO market has peaked, but he did say a correction would be welcome. “I don’t think this is a long-term washout. The thing that is driving IPOs and equities is the tremendous amount of liquidity in the market.”
Menlow agreed: “The process is a healthy one, because it will bring valuations more into line with where the market should be.”
Another company to go public is Chadwick’s of Boston, an off-price-clothing catalog firm to be spun off from off-price retailer TJX Cos Inc.
Vincent Slavin, who tracks IPOs for Cantor Fitzgeral, said he expects Teleport Communications Group Inc. to perform well in its $375-million offering.
He also likes American Pad and Paper, Trex Medical Corp., Travis Boats and Motors, software company Seibel Systems Inc. and railroad company Genesse & Wyoming.
Other companies scheduled to go public include CheckPoint Software, Kideo Productions, National Propane Partners Inc., Apache Medical and Perry’s Majestic Beer.
