The IPO Buzz: A Pleasant Surprise

Based in East Hanover, New Jersey, Comverge is a provider of software solutions that let utilities regulate energy consumption during periods of peak energy demand.
Comverge priced 5.3 million shares at $18 each on Thursday evening, well above its original filing range of 4.69 million shares at $15 to $17 each. The IPO started trading on Friday and closed its opening day at $22.31, UP $4.31 per share.
Formed in 1997, Comverge has never turned a profit and has racked up an accumulated deficit of over $52 million, according to its prospectus.
{mosgoogle}That was the reason why many of the IPO professionals gave the deal an opening-day premium of 50 cents to a $1 per share (a 2-Star SCOOP rating). One of the experts even saw the deal trading flat to up 25 cents.
The key to an IPO’s aftermarket performance during the “insanity dot-com” era of 1999 and 2000 was growing revenues. Comverge does have that.
For the year ended 2006, Comverge reported revenues of $33.9 million, up 45 percent from $23.4 million a year ago. Nevertheless, the company still reported a net loss. In 2006, it lost $6.2 million, down from a loss of $8 million a year ago.
Sizing Up the Deal
The first clue that the deal was “hot” came when its offering terms were announced –- and they were more generous than the filing. Bankers were able to raise $95.4 million, up 27.2 percent from their original filing plans of $75 million.
“Increase a deal, double my order” kicked into play.
The IPO opened at $21, traded up to $23.50 and closed at $22.31, one of the sharper opening-day gains of the year.
But Comverge was not a case of “back to the future.” The answer was found in comparing an earlier “red herring,” or preliminary prospectus, with a more recent one. It was in the numbers. Comverge gave no quarterly breakdown in its financial statements. Here’s what some pencil work and a handheld calculator revealed:
For the fourth quarter ending December 31, 2006, Comverge had net income of $6.2 million on revenues of $21.1 million, compared with net income of $1.9 million on revenues of $11.5 million for the same period a year ago.
Quarter versus quarter will do it every time.
That’s not all, folks!
The other factor behind Comverge’s aftermarket performance was the underlying strength in the IPO market.
On Monday, April 9, bankers had seven deals on April’s IPO calendar. They were expecting to raise $1.5 billion.
Fast forward to Monday, April 16: Bankers have 15 deals on April’s IPO calendar. They are expecting to raise $2.97 billion.
And they have already priced one from last week’s lineup. It was Comverge.
This week, bankers are looking to price six deals. Three are “blank check” carryovers from last week. The one that’s everybody’s “pick of the week” is MetroPCS Communications (NSYE: PCS proposed).
For subscribers: Please check the IPO SCOOP Rated Calendar for the latest Street Consensus of Opening Premium ratings, and standby for IPO Alert emailings for any changes in those SCOOP ratings.
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