The IPO Buzz: Judging An IPO By Its Cover

March’s IPO calendar makes its debut this week with one, two or three deals, depending upon your interpretation of the fine print on the cover page of the prospectus.

 Two of the three have notations alerting potential investors of a deviation from normal underwriting procedures.

 The Best Effort

Wowo Ltd. (WOWO – proposed) is a Beijing-based operator of third-party e-commerce platforms. It operates, a group-buying site that some have called China’s Groupon. But Wowo has developed its business to focus on local entertainment and lifestyle services such as restaurants, movie theaters and beauty salons. Recently Wowo has moved into mobile e-commerce.

Let’s look at the cover of Wowo’s “red herring,” which is Wall Street jargon for the preliminary prospectus.

 The third paragraph, second sentence reads: “We anticipate that the offering will be on a “best efforts” basis with a minimum of Forty Million Dollars ($40,000,000) required to be raised in this offering.”

 The deal was scheduled to start trading last week, but did not. Calls to the underwriter for a pricing date were not returned.

 Note: The “best effort” offering represents an agreement in which an underwriter (or agent) promises to make a full-fledged attempt to sell as much of an initial public offering as possible. It relieves underwriters (or agents) from responsibility for any unsold inventory in the event that they are unable to sell all the securities.

 Not Really An IPO

Summit Therapeutics plc (SMMT – proposed) is a United Kingdom-based biopharmaceutical company focused on the discovery, development and commercialization of novel medicines for diseases for which there are no existing treatments or inadequate therapies. The company is working on the development of a small-molecule pill to treat Duchenne muscular dystrophy, which is a rare genetic muscle-wasting disease that mostly affects boys. The life expectancy of these patients ranges up to their late 20s. Summit is also working on the development of a novel antibiotic to treat Clostridium difficile infection, which is an infection of the colon that can cause severe diarrhea and death. C. difficile has been linked to the use of broad-spectrum antibiotics.    

 Now let’s go to the cover of Summit’s “red herring.”

The second paragraph reads: “Prior to the offering, there has been no public market for the ADSs. We have applied to list the ADSs on the NASDAQ Global Market under the symbol “SMMT.” Our ordinary shares are admitted for trading on AIM, a market operated by the London Stock Exchange plc, or AIM, under the listing code “SUMM”. On February 19, 2015, the last reported sale price of our ordinary shares on AIM was £1.50 per share, which is equivalent to $11.54 per ADS based on an assumed exchange rate of £1.00 to $1.5394.”

Note: Summit’s shares have been trading on London’s AIM since Oct. 24, 2004, according to its “red herring.” This makes the deal a follow-on offering. Investors can purchase shares traded in London before this offering is priced in the U.S. capital markets.

A Firm Commitment

Topping the short list is what is known in Wall Street jargon as “a firm commitment.”

MaxPoint Interactive (MXPT – proposed) is a Morrisville, North Carolina-based provider of business intelligence and marketing automation software service. Its services solution enables national brands to drive local in-store sales. National brands use its MaxPoint Intelligence Platform to predict the most likely local buyers of a specific product at a particular retail location and then execute cross-channel digital marketing campaigns to reach these buyers. Its solution leverages high-velocity data processing and proprietary statistical models to continuously analyze more than 10 billion daily data attributes to delineate consumers’ real-time purchase intent.

Let’s look at the cover of its “red herring.”

Its wording is straightforward with no mention of “best efforts” or “our shares are admitted for trading” elsewhere or anything else.

Note: In a firm commitment, an underwriter purchases all securities directly from the issuer for sale to the public at the price specified.

Looking into next week, the calendar is clean and green, but you never know what Monday will bring from the SEC’s filing window. The month is young and the major U.S. stock market indexes are trading at or near record closing highs.

This type of stock market has always been the breeding ground for a busy IPO calendar.

Stay tuned.

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