IPO Volume Is Hot, but Response Is Tepid
Traditionally a quiet month for initial public offerings, August is shaping up as the busiest month this year and the busiest August since 1983.
But investors hoping to make a killing in August’s new issues have been mostly disappointed: IPOs aren’t popping on their first days as they were earlier this year, even though some companies selling shares this month are doing so at marked-down prices to entice buyers.
That could be good news, though, for investors with a longer time horizon. The weak initial receptions for many IPOs in April and May--amid the broad market downturn--gave small investors a chance to buy at prices that turned out to be bargains: Many of those stocks have surged since.
As of last week, 57 IPOs had been priced this month, and 30 more deals are on the calendar to be sold, according to Thomson Financial Securities Data, a New Jersey data tracker.
If the pending deals are completed, the volume of deals for the month will surpass August 1983, when 75 IPOs were sold. It also would be the busiest month this year, topping March, when 66 IPOs were priced.
So far this year, 345 IPOs have come to market--75 of them, or one in five, in the last three weeks alone.
The current glut of IPOs stems from the large number of deals that were postponed in spring because of the market’s plunge from March through May. Now, Wall Street is more welcoming to companies’ first-time stock sales.
To a point, anyway: Overall, investor demand has been tepid, with cautious buyers--many burned by IPOs last year or early this year--ravenous for a relative few offerings, and avoiding many others.
Yet the deals keep coming anyway. “We’re heading toward a holiday weekend [Labor Day], and underwriters are very ambitious trying to shove a bunch of stuff through before the holiday,” said Ben Holmes, analyst with IPOPros in Boulder, Colo.
“It shows you how desperate everyone is to raise funds,” said Gail Bronson, an IPO analyst and Internet consultant in Silicon Valley.
For the year to date, which includes the hot IPO market of last winter, the average IPO has seen a pop of 63.4% on its first trading day compared with the offering price, according to Thomson Financial.
By contrast, August’s IPOs so far have gained 26.9%, on average, on their first trading day, Thomson Financial says.
Despite the weaker performance results, investment bankers say they’re happy with the reception they’re getting for IPOs in general.
“The market has definitely opened back up,” said Davies Beller, senior managing director at Bear, Stearns & Co. in Los Angeles. “We’re telling clients the market is open for companies with strong cash flow, that are profitable and that can differentiate themselves from their competitors.”
Many IPO investors are looking for bargains and for solid companies that will be survivors, bankers say.
Unlike earlier this year, large institutional investors are more careful now to avoid companies that will end up becoming ticking time bombs in a portfolio, bankers say.
Meanwhile, individual investors--who still often must wait to buy when IPOs begin trading, because bigger investors get most of the stocks at the offering prices--are interested but cautious, analysts say.
That caution may be a big part of what’s limiting the stocks’ first-day gains and performance immediately thereafter.
Analyst Bronson thinks that caution makes sense. “The IPO market continues to be a dangerous place to play,” she said. “Investors should be looking for the really good solid companies.”
Still, there have been some standout deals.
Last week--the busiest week for new offerings so far this year, with 29 deals--one of the big winners was Active Power Inc. (ticker symbol: ACPW), an Austin, Texas-based maker of power-storage and backup-power products for computers.
The stock more than tripled its first day, soaring from $17 to as high as $57.75. It has since eased to $47.75 as of Monday.
Another big hit last week: Broomfield, Colo.-based McData Corp. (MCDT), a spinoff of EMC Corp. McData, which makes switches and software for data-storage systems, rocketed from $28 at its IPO price to a high of $94. It closed Monday at $85.
But there also were some notable bombs.
One of the biggest was America Online Latin America (AOLA), which sold shares at $8 each, far below the $17 the company hoped to get. The stock Monday was unchanged from the IPO price.
Industry sectors that have seen the strongest IPO demand in August are telecommunications equipment and software, with biotech also garnering strong investor interest, analysts said.
Eight biotech companies went public last week alone, capping what has been one of the busiest four weeks for the sector. Esperion Therapeutics Inc. (ESPR), which develops cholesterol-lowering drugs, went public at $9 a share and rose 31% on its first trading day Thursday, though it has since pulled back to $10.88.
Among the companies expected to price deals this week are Santa Clara-based Integrated Telecom Express Inc. (ITXI), which develops and markets integrated circuits and software for broadband communications equipment; and Palo Alto-based WJ Communications Inc. (WJCI), whose radio frequency products speed voice, video and data traffic over fiber optic, wireless and cable networks.
IPOPros analyst Holmes predicts that Galion, Ohio-based Peco II Inc. (PIII), which designs and makes power converters and other equipment for telecom companies and Internet service providers, could be one of the hottest deals. The company has been profitable for the past several years and has “impressive” revenue growth, he said.
“Don’t be fooled by the name--it sounds like a limited partnership, but this is a buy-and-hold kind of deal. It will become an institutional darling,” Holmes said.
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Debora Vrana can be reached at debora.vrana@latimes.com.
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Hottest IPOs From First-Day Close
The time to buy IPO stocks generally is when nobody wants them. That’s reflected in this list, which shows the initial public offerings of 2000 that have gained the most from their first-day closing prices through last Friday. The IPOs that have performed best so far this year are those that hit the market in April and May--when investors in general were wary of stocks, particularly higher-risk ones. By using first-day closing prices as the starting price, this table shows the price individual investors were more likely to get, because they often can’t buy at the offering price.
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2000 First-day Fri. Pctg. deal Ticker Company close close gain date symbol Nuance Comm. $33.94 $156.44 360% 4/12 NUAN Sonus Networks 50.50 198.56 293 5/24 SONS Orchard Biosciences 10.94 41.00 275 5/04 ORCH Praecis Pharma. 11.00 40.00 264 4/26 PRCS Centillium 22.88 79.75 248 5/23 CTLM DDI Corp. 11.25 37.19 231 4/11 DDIC Stanford Micro. 15.38 45.00 192 5/25 SMDI Packard Biosciences 9.13 24.63 170 4/19 PBSC Pixelworks 10.89 29.13 167 5/18 PXLW Exelixis 15.19 40.63 167 4/10 EXEL
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Source: Thomson Financial Securities Data
