Summer Swoon Lingers but IPO Biz May Heat Up
Make way for Dummies, green beans and kava.
IDG Books Worldwide, publisher of the best-selling “For Dummies” guides, Del Monte Foods of San Francisco and Natrol, a Chatsworth maker of nutritional supplements, are planning to sell stock to the public in late July.
But all three California-based firms could face a tough road as the market for initial public offerings continues to be lackluster, with many deals priced below their expected range and others failing to see stock prices rise on the first trading day.
“The IPO market is not the happiest place in the world of investing right now,” said John E. Fitzgibbon Jr., editor of New York-based IPO Reporter, who has followed the market for nearly four decades. “But I think it’s in the process of turning around for a good summer.”
The malaise has continued early this month, with few deals priced and others delayed. That’s partly because of the June swoon, when of the 55 IPOs priced, only seven were sold to investors above expected prices, 24 were sold within the planned range and 24 were sold below expectations, resulting in the worst month for initial offerings so far this year, according to IPO Reporter.
Still, smaller stocks in general have been rebounding in recent weeks, although they are lagging blue-chip issues. If Wall Street continues to advance, Fitzgibbon and others predict that enthusiasm for IPOs will soon return.
In coming weeks watch for an estimated $325-million initial public offering from Del Monte. The largest producer of canned foods in the United States had $1.4 billion in sales last year. The venerable firm has 2,550 full-time employees and 15 production centers in California, Texas and elsewhere.
Del Monte will use proceeds from the IPO, for which Morgan Stanley, Dean Witter, Discover & Co. is lead manager, to pay back debt. The company recently paid $195 million, mostly cash, for Contadina, known for its line of canned Italian sauces. With the IPO, TPG Parners, a unit of Texas Pacific Group, will reduce its ownership stake in the company to 46.7% from 69.5%.
IDG Books Worldwide, the Foster City-based publisher of the best-selling “For Dummies” series and computer books, plans to go to Wall Street with an estimated $50-million deal, also through lead manager Morgan Stanley Dean Witter.
The firm, founded in 1990 by John Kilcullen, who once worked for Bantam Doubleday Dell Publishing Group in New York, publishes books that tap into the anxiety and frustration people feel about technology, finance and other complicated issues. IDG has more than 700 active titles, including “DOS for Dummies,” “Personal Finance for Dummies” and “Dating for Dummies.” About $40 million of the IPO proceeds will be used to pay debt owed to parent company International Data Group. IDG has revenue of $120 million its last fiscal year and a profit of $7 million, according to its IPO filings.
Natrol is a local company to watch for. It was founded in 1980 by Elliott Balbert as a cosmetics firm. As it moved into nutritional supplements--it now offers 145 such products--sales have gone from $9.5 million in 1993 to $42.9 million in 1997. In the same period, profit has jumped from $279,000 to $4.1 million.
The company is planning an IPO of as much as $50 million through lead manger Adams, Harkness & Hill, with co-managers NationsBanc Montgomery Securities and Piper Jaffray.
Natrol is one of the most aggressive advertisers of kava (derived from an obscure plant in the South Pacific. Considered by some to be a natural stress reliever, kava is seen as a potential blockbuster by those who promote herbal remedies. Natrol has nearly 200 workers at its plant in Chatsworth.
This week will be slow for deals, but watch for the technology sector to heat up again soon. Echelon, a Palo Alto-based firm that develops network systems that can be used, for example, to create “intelligent” homes, buildings or factories in which lighting and appliances are programmed, plans to go public with a $45-million deal led by NationsBanc Montgomery.
Among deals still pending, Golden State Vintners, a Greenbrae-based supplier of bulk wine, had its IPO pushed back, mainly because of the poor market conditions. Ditto for Team Communication, a Los Angeles-based developer of TV programming for the Disney and Family channels.
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Debora Vrana covers investment banking. She can be reached at debora.vrana@latimes.com.
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Tracking the Deals
IPO Indexes
The following indexes from IPO Monitor track the market for initial public offerings by measuring the peformance of 30 IPOs nationwide and 10 IPOs by California-based companies. A score of 30.9, for example, indicates that shares have risen by a mean of 30.9% from the IPO price.
Last week’s IPO conditions
California: Outstanding (23.2)
National: Healthy (10.0)
Rating system
Less than 7: Poor
8-15: Healthy
16-20: Strong
21-25: Outstanding
26 or more: Exceptional
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Deal Spotlight
San Francisco-based DE Monte Foods Co., the largest producer of canned foods in the United States, is planning to go go public with a first-time stock offering in late July. “It’s a well-established name, a big offering. And basically, the big deals have flopped this year,” said John E. Fitzgibbon, an IPO watcher in New York. “Due to the huge size, the demand isn’t there to create a big hit.” David Menlow, president of IPO Financial Network Corp., in New Jersey, agrees. “Del Monte has been given a case of food poisoning by two other tainted offerings this year, Aurora Foods, an IPO which opened flat, and Trpoicana, which already has a cold shoulder from investors though it hasn’t been priced.” Still, experts say Del Monte could do very well in the long run. “It’s got all the right trimmings,” Menlow says.
* Amount to be raised: $325 million
* Ticker: DLM
* Underwriter: Morgan Stanley Dean Witter
* Range: $16-$18
