True, bankers were able to price only six of a planned 11 deals. And three of the six were priced below their original filing ranges.
That wasn’t a sign of a frothy IPO market.
Two deals flopped, even though they started trading on Thursday, when the Dow Jones Industrial Average surged 217 points and the Nasdaq Composite Index climbed 62 points.
Not even that was the sign of a frothy market, when just about any company could go public and investors would drive up the stock –- like the “insanity dot-com” days of old.
On Friday, the trend turned overwhelmingly positive. On the last day of June, and incidentally the final day of the second quarter, seven companies filed to go public. They hope to raise $1.34 billion. That increased the week’s totals to 11 new filings, aiming to raise almost $2 billion.
It made last week the third-busiest filing week in 2006, according to available reports.
Now let’s take a look at the flops, big and small.
Aventine Renewable Holdings’ (NYSE: AVR) IPO did a colossal belly flop, while Gmarket’s (Nasdaq: GMKT) IPO did a minor flop after a fast-start opening.
The Big Flop:
Aventine, an Illinois-based ethanol producer and distributor, had been giving off signs of a “hot issue.” First, the deal was increased to 8.08 million shares, up from 7.75 million shares. Next, the price range was increased to $40 to $43 per share, up from $37 to $41 per share. Then 9.08 million shares were priced at $43 each. Remember the saying, “Increase a deal, double my order?”
In an extremely rare case, Aventine’s increased deal was a short on the opening trade, not a buy. The IPO opened at $41.75, down $1.25 per share from its initial offering price.
There’s a long-standing New York Stock Exchange rule: The initial trade for any stock starting to trade on the NYSE for the first time is considered a “plus tick” and can be shorted at that price.
Aventine climbed as high as $42.50 and closed its opening day at $38.37, DOWN 10.8 percent from its initial offering price.
The Small Flop:
Gmarket, the South Korean-based e-commerce retailer, was also puzzling. Bankers priced 9.1 million shares at $15.25 each, on the high end of its $13.25 to $15.25 filing range. Gmarket opened at $19.10, UP 25.3 percent from its initial offering price. The IPO never traded higher. It flopped to a low of $14.22 before closing its opening day at $15.10, DOWN 0.98 percent from its initial offering price.
That was it! Bankers had had enough.
On Friday morning, there were two other pending deals. Gordon Biersch Brewery Restaurant (Nasdaq: BIER proposed), a Chattanooga-based theme restaurant, was kicked into the week of July 3, and BIDZ.com (Nasdaq: BIDZ proposed), a California-based online jewelry auctioneer, was postponed.
Beating the Big Stock Indexes
But last week’s IPO traffic ended on an upbeat note.
Five of the week’s six offerings ended above their initial offering prices (see IPO Traffic for details) while posting an average gain of 6.48 percent. That was much better than the popular stock market indexes.
The Dow Jones Industrial Average closed on Friday at 11,150.22, UP 1.47 percent for the week, DOWN 0.16 percent for June and UP 4.04 percent for 2006.
The Nasdaq Composite Index closed on Friday at 2,172.09, UP 2.39 percent for the week, DOWN 0.31 percent for June and DOWN 1.51 percent for 2006.
The S&P 500 closed on Friday at 1,270.09, UP 2.07 percent for the week, UP 0.01 percent for June and UP 1.76 percent for 2006.
And how did the second quarter go? Only the Dow finished higher, ending the quarter up 0.37 percent. The Nasdaq lost 7.17 percent, while the S&P 500 fell 1.90 percent.
To sum it up, not all the IPO players were disillusioned by last week’s performance.
A veteran West Coast hedge fund manager said, “By the time everybody will have gotten back from the July 4th break, they will have forgotten what happened last week.”
He wasn’t the only one to see some light at the end of the new-issues tunnel. Last week’s IPO traffic picked up speed just before the July 4th holiday weekend began. The Securities and Exchange Commission’s filing window was busy with 11 companies planning on going public — seven coming through on Friday alone.
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