Ready to Rock : Public-Offering Climate Ain’t What It Used to Be
They say timing is everything. And no one knows that better than a company trying to go public.
Guitar Center Inc., the Agoura Hills retailer, successfully priced its first stock offering Thursday despite a stock market drop of 160 points just an hour earlier and in a climate where investors are increasingly cautious about investing in initial public offerings.
“The IPO market has cooled from where it was,” said John B. Jackson, a vice president with the Los Angeles office of Bowne, the largest printer of financial documents in California.
“1996 was a crescendo, especially in California, where technology was driving it. But there are just so many good deals out there. Now you are seeing some second-tier deals,” he said.
So far this year, a total of 19 California companies, mostly health-care and computer firms, have gone public. On average, their stocks were priced 14.59% below the expected prices the firms had filed with the Securities and Exchange Commission, said CommScan, a New York data firm.
That compares with the 101 companies that have completed IPOs nationwide, which were down on average only 5.44% from their filing prices, CommScan said.
“Investment bankers and companies nationwide are having to reduce the prices they expected for their IPOs because of a lack of demand,” said Henry Taibo, an equity analyst with CommScan.
California companies have done worse than the national average because of the heavy concentration here of more volatile tech firms.
Some California examples:
* On March 11, Storage Dimensions, a Milpitas maker of data storage systems for computers, raised $18.9 million in an IPO, only half the $36.1 million it had filed to raise. The stock was priced at $7 a share, 26% below the amount it expected, CommScan said.
* On Feb. 12, DAOU Systems, a San Diego designer of computer networks for the health-care industry, went public at $9 a share, more than 30% below the mid-range stock price the company filed for, CommScan said. It is currently trading at $7.50 a share.
Part of the reason there is less demand these days for IPOs, said analysts, is that the large pension and mutual funds that traditionally buy such offerings are instead buying the stock of blue-chip, or established, companies, which have seen stronger gains.
As the Dow Jones industrial average has climbed to record levels--despite Thursday’s drop of 160 points--indexes that track smaller stocks rose relatively little this year.
“The entire spectrum of IPOs hasn’t done as well this year as last year, really since last summer,” said Richard Smith, head of syndicate trading for Montgomery Securities, which helps many California companies go public and was hired by Guitar Center.
This year’s climate for IPOs is already very different than last year’s, when a record number of California IPOs were sold, raising about $7 billion. That was a 33% increase from the previous year and a 6% increase from previous highs in 1993, according to data from Bowne. Nationwide, IPOs grew to more than $50 billion in 1996.
Guitar Center priced 6.75 million shares at $15 apiece, right in the middle of the $14- to $16-a-share range expected by the company in its SEC filing. The deal was led by Goldman, Sachs & Co., and it was the first lead-managed California IPO by Goldman Sachs this year.
“Given the conditions in the market, it did pretty well,” one trader said.
Investor interest today in the 33-year-old musical instrument retailer is expected to be strong, analysts said. They said IPOs from companies other than health-care and technology could be the big winners this year.
Indeed, one of the more successful California IPOs so far in 1997 is Kilroy Realty Corp., a real estate investment trust that owns and develops commercial and industrial properties, primarily in California. The 50-year-old company, based in El Segundo, was taken public by Prudential Securities. Its $287-million public offering was priced at $24 a share, 15% above the filing price. The stock closed at $28.125 on Thursday.
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IPO Pace Slows
California companies completed a record number of initial public offerings in 1996, but so far this year, IPOs in the state seem to be declining.
Total Value of IPOs
Year to date: $1 billion
Number of IPOs
Year to date: 19
Source: CommScan
Public Problems
In a signal of declining investor demand for IPOs, 19 California companies have completed initial public offerings so far this year, but their stock prices are down more than an average of 14% from the expected price ranges they filed with the Securities and Exchange Commission, says CommScan, a New York financial data firm. Nationwide, the average stock price of an IPO is down only 5.44%, CommScan says. The 19 California firms:
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Offering % change from Thurs. Company price SEC filing price close Kilroy Realty $23.000 15.00% $28.125 Overland Data 10.000 11.11 10.625 Micro Therapeutics 6.000 --50.00 6.250 VDI Media 7.000 --41.67 7.000 Aviation Distributors 5.000 --33.33 5.000 DAOU Systems 9.000 --30.77 7.500 Qualix Group 8.000 --27.27 7.000 Storage Dimensions 7.000 --26.32 7.000 Four Media 10.000 --23.08 10.000 Cerus 12.000 --20.00 11.375 Macrovision $9.000 --18.18% $8.625 Earthlink Network 13.000 --13.33 10.750 SCPIE Holdings 18.250 --8.75 22.750 Coulter Pharmaceutical 12.000 --7.69 9.375 Eco Soil 4.125 --2.94 6.875 ATL Products 11.000 0 10.625 Biosite Diagnostics 12.000 0 11.000 Healthdesk 5.000 0 4.1875 U.S. Rentals 20.000 0 17.625 Average --14.59
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Source: CommScan
