This week IPOs comments from TSC (you must be subscriber to get this info).
A Few Fundamentals, Part One
By Ben Holmes
Special to TheStreet.com
10/10/99 7:40 PM ET
Before we get to this week's deals, I'd like to refresh everyone on the basics of an IPO.
This week is pretty light in terms of deal flow, which works out perfectly for me. In our last episode I promised you a series of articles on the basics of the IPO markets. Well, I'm an honorable guy, so here is the first installment. Some of you may find this a bit fundamental or even boring, but read on. Even you pros can stand to take a refresher course once in a while.
Buying IPOs: The Basics
All IPOs share some common features. Some of these features are:
Deal size, or number of shares. The number of shares being sold by the company or by selling shareholders will be broken down and explained within the prospectus.
Price range. This is expressed in dollars and represents the approximate dollar price range that IPO investors will pay. An example might be $8 to $10, or $12 to $14. A deal may be priced anywhere within this range or even -- depending on demand for the deal -- above or below the range.
Underwriters. These are always brokerage firms, and are the only source from which an investor can buy shares in an IPO at the issue price. The underwriters are ranked from the top (known as the managing underwriter, or lead) down to the members of the selling group. Not all selling group members are listed in the preliminary copies of the prospectus. Many are known only on the day that the deal is priced.
There are a million details in every deal, but for our purposes today we're focusing on the three that I've listed above. Once we get everyone up to speed we can dig into the details of a typical IPO. For now we want to know three things: How do we buy shares, what price do we pay and once we own them, how do we sell them? Trust me: Once we get these things down cold, everything else will make a lot more sense.
So, how do you buy an IPO? Well, first you'll need to have an account with one of the underwriters or selling group members. Remember, not all of the selling group members will be listed in the early versions of the prospectus (you have read the prospectus, right?). If you are interested in a particular deal, you would be wise to go right to one of the underwriters named in the filing rather than trying to guess which of the online firms might be included in the deal at the last minute.
Once the account is established and you've identified an IPO you are interested in, you'll need to enter what is known as an Indication of Interest, or IOI. This is a type of order that tells your broker and the firm he works for that you would like to purchase a certain number of shares of a particular deal at the issue price. An IOI is different from the other types of orders you give your broker in that it is not binding by either side until the IPO is priced and you have been allocated and have accepted shares in the deal. In other words, the firm doesn't have to give you shares in the deal and you can cancel the IOI at any time before you accept stock. Remember that it is the broker's responsibility to confirm your interest in the deal and to enter a buy order for your account once you have accepted the shares. This is known as ticketing, and marks the actual purchase of shares in an IPO.
Now that you're one of the individual investors lucky enough to own an IPO, what price did you pay? This seems to be a major point of confusion for many of the readers of this column, so let's put it to bed once and for all. When you buy shares in an IPO, you pay what is known as the issue price. This is the price set by the underwriters on the shares issued in the IPO. This is the magic price you are always hearing about, but never knew how to get. Now you know. So, now what?
Selling IPOs seems to be as big a mystery as buying them. When can I sell? How do I sell? What price will I get? Let's take these one at a time.
You can sell shares of an IPO just as soon as there is an open and active trading market in the stock. IPOs will usually open for trading during the session immediately following the deal's pricing. As an investor there can be no restrictions placed on you to prevent you from selling shares in an IPO that you have purchased. It is important to note that you must pay for shares in an IPO before you can sell them. Failure to do so will result in certain restrictions being placed on your account, and may affect your ability to buy stocks without cash on hand.
When you do sell your IPO shares, you will be paid whatever the current bid side of the market is at the time that your order is executed, minus (of course) any commissions your broker charges.
That's the scoop. Obviously there is a great deal more to the IPO market than what I can cover in just this short article. I hope though, that I've cleared up some of the simple questions you might have had and that you'll come back next week for Part II of this series. In the meantime let's look at the deals for this week:
Cysive
IPO: (CYSV:Nasdaq) Software engineering firm that designs and builds complex, highly customized architectures and systems necessary to support large-scale e-businesses.
Deal size: 3.35 million
Price range: 11 - 13
Led by: Thomas Weisel
My take: Software continues to be an important theme in this market. Dependable revenue growth and even a bit profitable -- expect a reasonable premium on this one.
Emed Technologies
IPO: (EMDT:Nasdaq) Provider of workflow solutions for electronically managing and distributing medical images and related patient information.
Deal size: 3.1 million
Price range: 12 - 14
Led by: Bear Stearns
My take: This is an excellent concept and the company seems to be building a serious customer base quickly. Strong revenue growth and a solid lead underwriter. This is probably one of the brightest spots on the calendar this week.
IGo
IPO: (IGOC:Nasdaq) Provider of hard-to-find, model-specific accessories and services for mobile electronic devices.
Deal size: 5 million
Price range: 9 - 11
Led by: BancBoston Robertson Stephens
My take: The company has managed an impressive improvement in its revenues, but is still in the red. Specialty e-tailers have been a mixed bag lately. I like the deal, but I would not bet the rent money on this IPO.
Infohighway Communications
IPO: (IW:Amex) Offers Internet and telecommunications services to businesses and consumers.
Deal size: 1.6 million
Price range: 9 - 11
Led by: Weatherly Sec Corp
My take: The most remarkable feature of this one is its revenues. The underwriter is completely unknown to me. Shares bought at the issue price may turn a small profit, but not knowing how the lead behaves in the aftermarket makes me want to watch from the sidelines for a bit before stepping in to trade it.
Martha Stewart Living Omnimedia
IPO: (MSO:NYSE) Creator of original "how-to" content and related products for homemakers and other consumers.
Deal size: 7.2 million
Price range: 13 - 15
Led by: Morgan Stanley Dean Witter
My take: This is a highly anticipated deal -- Martha is the queen of entertaining and decor, and has managed to establish her name as a world-class brand. I would expect a neat 20% to 30% pop right away, but don't look for this one to double or triple. Either way, it's a good thing.
Net Radio
IPO: (NETR:Nasdaq) A broadcaster of originally programmed audio entertainment over the Internet through its Web site, www.netradio.com.
Deal size: 4 million
Price range: 11 - 13
Led by: Gerard Klauer
My take: I've been pretty close to other operators in this space and it is a tough business. These people are slow to grow their revenue and have spent considerable sums of money they didn't have. There are better places to be this week.
Netcentives
IPO: (NCNT:Nasdaq) Provider of Internet loyalty, direct marketing and promotion products and services.
Deal size: 6 million
Price range: 10 - 12
Led by: Credit Suisse First Boston
My take: A tough group lately. Decent underwriters, strong revenue growth but big losses. Have reasonable expectations.
PCQuote.com
IPO: (PCQT:Nasdaq) An Internet-based provider of real-time financial data.
Deal size: 5 million
Price range: 8 - 10
Led by: Prudential Securities
My take: This deal has been dragged around far too long. I see no reason to be involved.
Plastic Surgery
IPO: (PSU:Amex) Develops and implements market expansion strategies and Internet-based awareness programs for its alliance of board-certified plastic surgeons.
Deal size: 2.4 million
Price range: 10 - 12
Led by: Cruttenden Roth
My take: I've read this one a couple of times and I just cannot get excited about the deal.
QuickLogic
IPO: (QUIK:Nasdaq) Develops, markets and supports advanced field programmable gate array semiconductors, or FPGAs, and associated software tools.
Deal size: 6.66 million
Price range: 8 - 10
Led by: BancBoston Robertson Stephens
My take: Semiconductor deals seem to be working in here. The company has significant revenue and a taste of profits. Robbie is the ruler of the IPO kingdom right now (my humble opinion), and it can make a deal like this work.
Radio Unica Communications
IPO: (UNCA:Nasdaq) Radio Unica is the only national Spanish-language radio network in the U.S.
Deal size: 5.7 million
Price range: 14 - 16
Led by: Salomon Smith Barney
My take: Flat to a small premium.
ReSourcePhoenix.com
IPO: (RPCX:Nasdaq) Provides outsourced financial and management reporting, accounting management, transaction processing and recordkeeping services.
Deal size: 4.25 million
Price range: 12 - 14
Led by: BancBoston Robertson Stephens
My take: Erratic revenue, big losses and a relatively uninteresting group. Flat.
SMA Real Time
IPO: (VTV:Amex) SMA is a video and film studio.
Deal size: 2 million
Price range: 8 - 10
Led by: Dirks & Co.
My take: Decent revenue but slightly erratic and slightly negative net income. The deal comes from a third-tier underwriter and is listed on the American Stock Exchange. I just can't get behind this one.
Vascular Solutions
IPO: (VASC:Nasdaq) Manufactures, markets and sells a sealing device that enables cardiologists and radiologists to rapidly seal a puncture site.
Deal size: 2.67 million
Price range: 11 - 13
Led by: William Blair
My take: Biotech: always a tough call. This one is a very early-stage company. Be realistic in your expectations.
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Ben Holmes is the founder of ipoPros.com, a Boulder, Colo.-based research boutique specializing in the analysis of equity syndicate offerings. This column is not meant as investment advice; it is instead meant to provide insight into the methods of new and secondary offerings. Neither Holmes nor his firm has entered indications of interest in any of the companies discussed in this column. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Holmes appreciates your feedback at bholmes@ipopros.com. |
