The IPO Buzz: An Unexpected IPO Windfall

Ubiquiti, based in San Jose, is a provider of wireless broadband networking products for under-served markets. It priced 7.04 million shares at $15 each. That was bad news for the company.
The offering raised $105.6 million — or about 32 percent less than originally planned. Its offering price was cut from a range of $20 to $22 per share, with the aim of raising as much as $154.8 million. The price cut was unexpected good news for investors.
The IPO opened at $16.50 – up $1.50 from its offering price of $15 per share. It popped to an intraday high of $19 and closed its opening day at $17.50 — up $2.50 or 16.7 percent from its original offering price.
That bucked the trend of IPOs priced below their original filing ranges. Their opening-day returns greatly underperform the “average” opening-day gain for all IPOs.
Back to Econ 101
Consider this: From January 2000 through last Friday (Oct. 14, 2011), 1,869 IPOs have been priced and traded, according to the U.S. Securities and Exchange Commission filings. This excludes unit offerings. Of that number, 618 IPOs had to be cut in size to meet a limited investor demand. (It’s ECON 101 – supply versus demand.) A limited supply versus a large demand – up goes the price — and a large supply versus a limited demand – down goes the price.
The average opening-day gain for the 618 IPOs priced below their original filing range was 1.66 percent. That’s sharply lower than the average opening-day gain of 25.97 percent for all 1,869 IPOs priced since 2000.
Naturally, Wall Street being what it is, there are exceptions to the rule. Nevertheless, about half of the chopped-down deals have been able to close their opening day’s trading above their offering prices.
High-Tech Battle of the Bulge
That brings us to this week and the only deal on the calendar.
ZELTIQ Aesthetics (ZLTQ – proposed), based in Pleasanton, California, is a medical technology company providing products using its proprietary controlled-cooling technology platform. Its first commercial product is the CoolSculpting System, which is designed to selectively reduce stubborn fat bulges that may not respond to diet or exercise. The company, founded in 2005, has about 148 employees.
ZELTIQ reported a net loss of $559,000 on revenues of $17.4 million for the three months ended June 30, 2011, compared with a net loss of $3.6 million on revenues of $6.6 million for the same period a year ago.
Bankers plans to price 7 million shares at $14 to $16 each to raise about $105 million. The company plans to offer 6,693,000 shares and selling shareholders expect to offer 307,000 shares.
The IPO is expected to be priced on Tuesday evening, Oct. 18, and to trade on Wednesday morning, Oct. 19, on the NASDAQ Global Market under the proposed symbol “ZLTQ.” Joint-lead managers are: J.P. Morgan and Goldman, Sachs & Co.
The company does have publicly traded competitors, such as Cynosure (CYNO); Solta Medical (SLTM) and Syneron Medical (ELOS). The Medical Equipment & Supplies industrial sector has underperformed the S&P 500 this year and over the last 52 weeks.

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Disclosure: Neither the author nor anyone else on the staff has a position in any stocks mentioned, nor do they trade or invest in IPOs. The author and staff do not issue advice, recommendations or opinions.