Andover’s Debut Hits Pay Dirt in Hambrecht’s 3rd ‘OpenIPO’
The third time seemed to be the charm Wednesday for San Francisco investment bank W.R. Hambrecht & Co.’s innovative “OpenIPO” system, given the successful initial public offering sold by Acton, Mass.-based Andover.net Inc. through lead underwriter Hambrecht.
Shares of Andover.net (ticker symbol: ANDN), which runs a network of Web sites about the Linux computer operating system and other so-called open-source software, more than tripled in their trading debut Wednesday on Nasdaq to close at $63.38. The company earlier sold a 27% stake, or 4 million shares, at $18 each, raising $72 million.
The deal was seen on Wall Street as a benchmark for W.R. Hambrecht, started in 1998 by Bill Hambrecht, founder of the venerable investment banking firm Hambrecht & Quist. Analysts predicted it will give much-needed legitimacy to the firm’s unusual IPO process.
This was the latest IPO W.R. Hambrecht sold using what it calls the “OpenIPO” Dutch auction process. The first two deals, done earlier this year, were seen as flops by Wall Street.
“They finally got a quality company,” said Steve Lacey, managing editor of IPO Reporter in New York. “This is what the Dutch auction process is all about.”
In a Dutch auction, held over several weeks, investors bid for a certain number of shares at a particular price. The idea is to find the highest price at which a company can sell all the stock it wants to offer.
The theory is that the process can help companies get a higher price for its shares--unlike many IPOs these days, which are priced based on conservative estimates of demand, only to blast off when trading begins.
Hambrecht’s OpenIPO system promises the company going public lower fees and more proceeds. It also promises small investors a greater chance of getting in on IPOs, which traditionally have been earmarked for institutions and major investors. Hence the name, OpenIPO.
Lacey said the recent buzz about Linux--especially surrounding the blockbuster IPO sold by Red Hat Inc., a Durham, N.C.-based software developer--boosted Andover. Many investors were bidding between $25 and $35 a share this week in a late rush to get in on the offering, he said.
In fact, the Dutch auction resulted in a $24-per-share “clearing” price (the lowest level at which all shares could have sold based on the bids received) for Andover, but the company elected to stay at the top of the expected price range of $15 to $18. Neither the company nor Hambrecht would comment on that move Wednesday, given the “quiet period” imposed by the Securities and Exchange Commission on companies making public offerings, but sources said Andover chose to leave money on the table in hopes of seeing a strong first-day price gain.
Given that the company settled on a lower price than the format yielded, at least one analyst questioned whether it was truly a Dutch auction. “This doesn’t smell like a Dutch auction to me,” he quipped.
Analysts said it is too early to tell whether the deal was really a triumph for Hambrecht’s process--or simply evidence of investor interest in all things Linux. Another Linux company, Sunnyvale, Calif.-based VA Linux (LNUX) raised the expected price range Wednesday for its IPO to $28-$30--more than double the original target.
Linux craze or no, most analysts said the Andover deal is a good sign for Hambrecht and could help it land other tech IPOs.
“This is a watershed for them, and for the Dutch auction process,” said Lewis Gersh, chief executive of Worldly Investor, a Web site for individual investors.
Andover’s stock jump was a marked change from Hambrecht’s other OpenIPOs.
In April, Ravenswood Winery Inc. of Sonoma, Calif., priced 1 million shares at $10.50, and the stock was flat in its debut. The shares eased 6 cents on Wednesday to close at $10.50 on Nasdaq. In November, after months of sluggish performance by the stock, Hambrecht took the unusual step of repurchasing about 600,000 shares, giving the firm a 13% stake in Ravenswood.
The June IPO for online magazine Salon.com has been trading down from its offer price of $10.50. The stock slipped 81 cents Wednesday to $6.69 on Nasdaq.
Times wire services were used in compiling this report.
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‘Andover’ the Money
The enthusiastic welcome that investors gave Andover.net on Wednesday was a switch for investment bank W.R. Hambrecht & Co., whose first two initial public offerings under its proprietary online auction format landed with a thud.
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Ticker Amount IPO 1st-day 1st-day Wed. Company symbol raised* price close % chg close Andover.net ANDR $72.0 $18.00 $63.38 +252% $63.38 Ravenswood RVWD 10.5 10.50 10.50 0 10.50 Salon.com SALN 26.3 10.50 10.50 0 6.69
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*in millions
Sources: Times research, Bloomberg News
