The IPO Buzz: Goldman Gossip and A Turnaround Shot

What gives? Last week, there was some truth in each scenario. But Wall Street being what it is, who knows? There may be a change in the wind.
Let’s take a look at last week and what has been causing people to think and talk the way they are.
Goldman Sachs was chastised over last week’s belly flop – the highly touted Niska Gas Storage LLC (NKA) offering. What’s the message when a deal’s offering price gets increased to $20 to $22 per common unit, up from $19 to $21 per unit? The IPO was priced at $20.50, opened at $19.50, closed its opening day at $19.10 and ended the week at $18.79, DOWN 8.3 percent from its initial offering price.
Such a fiasco brought to mind a couple other Goldman Sachs deals priced over the last 52 weeks:
  • Shanda Games (GAME), a highly touted IPO, priced 83.5 million American Depositary Shares at $12.50 each in September 2009. What’s the message when an offering increases the number of shares to 83.5 million, up from 63.5 million shares? The IPO closed its opening day at $10.75 Friday – a sharp loser – and on Friday, May 14, at $6.05 — DOWN 51.6 percent from its offering price.
  • Metals USA (MUSA) priced 11.4 million shares at $21 each in April 2010. What’s the message when an offering is increased to 11.4 million shares, up from 10.5 million shares and priced above its filing range of $18 to $20 per share? Metals USA closed its opening day at $19.20, DOWN 8.6 percent from its initial offering price and on Friday, May 14, at $15.72 — DOWN 25.1 percent. 
Worth noting: Metals USA was owned by a private-equity company before it went public.
But that’s not all. Here’s more about last week and P/E firms.
Express Parent (EXPR) was another entity with a private-equity past. Before going public, Express was majority owned by Golden Gate Capital, a private-equity company. Sixteen million shares were priced at $17 each on May 13 to raise $272 million. It was priced below its filing range of $18 to $20 per share. Most of the proceeds were used to pay off borrowings to finance the acquisition of Express by Golden Gate Capital, and the rest of the proceeds went to selling shareholders, including Golden Gate. The IPO closed its opening day at $16.75 and on Friday, May 14th, it ended at $15.86 — DOWN 6.71 percent from its offering price.
The Missing Pop
The experts are right when they say today’s IPOs are being overpriced — there’s no aftermarket pop. The numbers back up this perception.
For the year to date, bankers have priced 47 IPOs, according to the U.S. Securities and Exchange Commission filings. The average opening-day gain for all 47 was 3.58 percent.
From January 2000 through December 2009, 1,828 IPOs were priced. The average opening-day gain for all 1,823 was 26.3 percent.
The message is clear. Bankers better start discounting their deals to get them done and bring investors flocking to the market. Here is their motivation: The backlog of IPOs is building.
As of Friday’s close, 102 companies have filed plans to go public. That is a sharp increase over the entire year of 2009 when 122 companies filed for an IPO.
Healthy Interest
Bankers have three deals on this week’s calendar: 57th Street General Acquisition , a “blank check” company; Accretive Health (AH – proposed) – a healthcare-billing service, and ReachLocal (RLOC – proposed), a Web marketing firm.
Here’s what makes the Accretive Health offering interesting:
Goldman Sachs’ name is on the left hand side of the prospectus, and 6.67 million of the 13.3 million shares being offered are coming from selling shareholders, including Oak Hill Partnership, a private-equity firm.
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.