The IPO Buzz: A Tale of Two Markets

That’s especially true when the new-issues calendar starts giving IPO buyers more bang for their bucks.
As we cruise into the end of October, it has become apparent there have been two IPO markets this year — a pre-Labor Day one and a post-Labor Day one. Consider the following:
By the close of business on Friday, Oct. 20, the IPO vineyard had produced 134 new issues this year, according to available reports. (Please see 2006 IPO Scorecard – Oct. 20, 2006, found on the home page of
The average gain is 13.4 percent. That wouldn’t lead to much bragging at the legendary Harry’s at Hanover Square, a favorite watering hole downtown for Wall Street’s investment bankers. But everything is relative.
With that average gain of 13.4 percent, this year’s IPOs have outperformed the underlying Nasdaq Composite Index by better than 100 percent. That’s right –- better than 100 percent!
On Oct. 20, the Nasdaq Composite closed at 2,342.30, UP 6.31 percent from 2,205.32 on Dec. 30, 2005.
However, there has been a striking distinction between the IPO market in the first eight months of 2006 and the market in the last seven weeks.
Pre-Labor Day
From Jan. 1 through Aug. 31, bankers priced 105 IPOs, excluding unit offerings. Here was the 2006 IPO Scorecard on Aug. 31:
  • IPOs price: 105
  • Up: 51
  • Down: 53
  • Unchanged: 1
  • Win-loss Ratio: 1 to 1 (almost)
  • Average opening-day gain: 9.72 percent
  • Average gain (Pre-Labor Day): 4.08 percent
  • Nasdaq Composite Index (Pre-Labor Day): Down 0.98 percent
On Aug. 31, the Nasdaq Composite closed at 2,183.75, down from 2,205.32 on Dec. 30, 2005.
Post-Labor Day
From Sept. 1 through Oct. 20, bankers priced 29 IPOs, excluding unit offerings. Here was the post-Labor Day 2006 IPO Scorecard on Oct. 20:
  • IPOs priced: 29
  • Up: 23
  • Down: 6
  • Win-loss Ratio: 4 to 1 (almost)
  • Average opening-day gain: 13.7 percent
  • Average gain (Post-Labor Day): 19.7 percent
  • Nasdaq Composite Index (Post-Labor Day): Up 7.26 percent
On Oct. 20, the Nasdaq Composite Index closed at 2,342.30, up from 2,183.75 on Aug. 31, 2006.
Since Labor Day, the IPO market’s average gain has been almost three times that of the underlying Nasdaq Composite Index.
Now that’s something for the regulars at Harry’s to lift a glass and cheer.
Last Week:
Last week’s IPO calendar had a few surprising thrills and an unexpected spill.
When the sun came up on Wall Street Monday morning, bankers were looking to price 14 deals and expecting to raise $880 million. Not all were expected to make it out the door, and there were no real runaway favorites.
Eight IPOs got priced, one was postponed, one was withdrawn and the other four were pushed off onto future new-issues calendars.
But there was one thing going for the bankers: A surging stock market.  
October 19
The granddaddy index, the Dow Jones Industrial Average, sailed into uncharted territory on Thursday, Oct. 19, in closing above the 12,000 mark for the first time ever.
By the way, Oct. 19 marked the 19th anniversary of the 1987 stock market crash. That dark day long ago, the Dow Jones Industrial Average got pounded for a 508-point freefall loss of 22.6 percent to close at 1,738.71, DOWN from 2,246.73 the pervious day. 
On Monday, Oct. 16, the Standard & Poor’s 500 Index punched through to a new 2006 closing high of 1,369.05. Nevertheless, that was still down 10.4 percent from the S&P 500’s all-time closing high of 1,527.44 set on March 24, 2000.
And the Nasdaq Composite? Well, the Nasdaq spun its wheels throughout the week and closed Friday at 2,342.30, DOWN 0.64 percent from its previous Friday’s close. However, it was still UP 15.9 percent from its July 21 closing low of 2,020.39.
The overall stock market’s strength spilled into the IPO calendar.
The Thrills
Investors’ interest started surfacing early in the week and “IPO Alerts” were e-mailed on Tuesday to subscribers, alerting them to an increase in the SCOOP ratings for: ExlService Holdings (Nasdaq: EXLS), an outsourcing provider, Stanley (NYSE: SXE), a defense contractor and Susser Holdings (Nadsaq: SUSS), an operator of convenience stores.
Each wound up among the week’s top winners.
(Please see IPO Traffic on the home page and click through for IPO Traffic for Week Ending Oct. 20, 2006.)
The Spill
The big shocker was LeMaitre Vascular (Nasdaq: LMAT), a provider of disposable and implanted devices used by vascular surgeons. Many had been giving the company and its IPO high marks. But something went wrong on the way to market.
Only those involved with the underwriting process really know what happened. The Securities Act of 1933 (which includes the “quiet period”) prevents them from speaking for a 45-day period after the pricing date.
Bankers were able to raise only 71.3 percent of what was planned. They priced 5.5 million shares at $7 each to raise $38.5 million. That was well below the $54 million target (6 million shares at $8 to $10 filing range).
What the tape told us was one or more of the institutions either cut back its commitment or pulled out of the deal ahead of the pricing. As a result, the IPO came apart.
More often than not, when a deal gets chopped, bankers leave a little wiggle room for investors to get out without getting hurt too much. That was not the case this time.
LeMaitre opened at $6.50 per share, down 50 cents from its $7-per-share initial offering price. It never recovered.
The upshot: LeMaitre raised $35.8 million after underwriting fees, bankers collected $2.7 million in underwriting fees, and investors, well … there’s always tomorrow.    
(Subscribers: Please check the IPO SCOOP-Rated Calendar and the IPO Pipeline with SCOOP Ratings.)