from red herring:
CMGI steers NaviSite into investor portfolios
By Gracian Mack
Redherring.com
September 9, 1999
The folks over at CMGI (Nasdaq: CMGI) are doing more than just incubating Internet companies and turning them loose on the public trading block -- they are creating a new initial public offering marketing model, as well.
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CMGI steers NaviSite into investor portfolios
On Tuesday, the Andover, Massachusetts-based company announced that it would repeat the Direct Share Program (DSP) it initiated in the July IPO for Engage Technologies (Nasdaq: ENGA). This time around, however, the proposed public offering is for the Internet application service provider NaviSite, which offers Web site and application hosting and management services.
According to some observers, the DSP is partly designed to generate buzz among individual investors before the IPO.
"If it's a gimmick, then it works," says Michael Costa, an institutional salesperson at IPO Monitor.
BASE PLAYERS
CMGI officials say the design behind the direct share offering is to build a base of support among individual investors.
In the Engage offering, shareholders of CMGI were given the opportunity to buy 600,000 shares of common stock in lots of 100 shares at the offering price. That's 600,000 shares "set aside" from the 6 million shares offered to the public. Traditionally, institutional investors have grabbed the lion's share of allocations between the time a stock is priced and the time it actually starts trading. In the case of Engage, those who bought without any discount to the $15 per share offer price saw the stock jump 173 percent to close at $41 per share on the first day of trading. With Engage currently trading nearly 93 percent above the IPO price, it's "pretty clear that we have a very loyal and supportive individual investor shareholder base," says Deidre Moore, director of public relations at CMGI.
"Investors who follow the Internet and Internet-based companies are aware of and very taken with CMGI as a good company," says Mr. Costa. "So it follows that companies that it spins off will have the benefit of that good association."
Well, get ready for another "good association." NaviSite is slated to offer 5.5 million shares of common stock in a price range between $10 and $12 per share. BancBoston Robertson Stephens, ING Barings, and First Albany will manage the underwriting. Wit Capital (Nasdaq: WITC) will facilitate the allocation of shares to DSP participants.
For the fiscal year ended July 31, NaviSite recorded $10.5 million in revenues, up 161 percent from the previous year. The company also reported a net loss of $24.5 million, or $7.41 per share, compared with a net loss last year of $9.2 million, or $1.14 per share.
After the IPO, CMGI will own about 71 percent of NaviSite's common stock. Other major NaviSite investors include Dell Computer (Nasdaq: DELL), which currently owns 5.3 percent, and Microsoft (Nasdaq: MSFT), which has a 4.8 percent equity stake. Of the total shares being offered, some 825,000 have been set aside for qualifying shareholders.
"That's about 15 percent of the offer, and that's about 5 percent more than was available in the Engage offering," says Catherine Taylor, director of investor relations at CMGI.
The shares offered under the DSP will be freely tradable with no restrictions, but those planning to "flip" shares (or sell them immediately) will run afoul of Wit Capital's antiflip policy, which puts you on a no-access list for the next IPO.
TRICKY STEPS
Ms. Taylor acknowledges that buying into an IPO through an online broker takes some getting used to and cautions that due diligence is crucial.
In addition to being a CMGI shareholder by the stated date of record, DSP participants must also open an online account with Wit Capital. That involves filling out a 20-odd-page account application form. Though the form is available for download at the Wit Capital site, it must be completed in its entirety (no skipping questions that applicants might consider invasive or not relevant), then signed and returned via postal mail. There is also the dreaded final step, where six or so hours after the Securities and Exchange Commission declares the deal effective, would-be buyers must be available to issue a final confirmation on their orders.
"In the Engage offering, about 9,000 people opened new accounts and actually went through the whole process validating eligibility," says Ms. Taylor. "But at the final confirmation that takes place after hours ... about 7:00 p.m., about one-third of those people had already gone home, so they didn't get the final email to confirm. They lost out and were very upset."
Indeed, much was made of the disgruntled wannabe shareholders back when Red Hat (Nasdaq: RHAT) set aside common stock in its IPO. In that instance, some people didn't have accounts, couldn't open accounts, or were unable to confirm intents to buy.
"That was a mess," says Mr. Costa.
In an open letter to potential investors, David S. Wetherell, CMGI's chairman, CEO, and president, sought to cover the bases on that one, writing, "Wit Capital will be using a new re-confirmation process that will allow participants to confirm conditional offers up to 48 hours BEFORE the IPO is priced, instead of requiring confirmation within a six-hour window on the evening the IPO is priced. Nonetheless, if a change is made in the offering terms just prior to the time the IPO is priced, you may be asked to re-confirm your offer again in a very short time."
No one from CMGI would reveal which of its fledgling companies is next in line for public offering and a DSP, but between August 1, 1998, and April 30, 1999, through its CMGI@Ventures, CMGI acquired minority ownership interests in 13 Internet companies, including Raging Bull, Asimba, Ancestry.com, Furniture.com, NextMonet, Onelist, and CarParts.com. |
