The IPO Buzz: The World Isn’t Square

Everybody expected thunder and lightning from Square’s (SQ) IPO last week and they got it, but not quite the way it came down. As it turns out, Pythagoras was on to something all those years ago. The world isn’t square.

There was a lot of controversy about Square’s relationship with Starbucks, Chairman Jack Dorsey’s dual role with Square and Twitter, and the company’s October 2015 round of funding at $15.46 per share. Square filed to offer 27 million shares at $11 to $13 each – a discount of 22.4 percent from a month earlier.

And the deal reportedly ran into buyers’ resistance at that level – a lot of resistance.

That was confirmed when Square’s IPO was priced at $9 per share – a discount of 25 percent from the mid-point of its filing range. The buyers were clearly in the driver’s seat and, this time, it worked. The stock opened at $11.20 on Thursday morning on the New York Stock Exchange, traded at a high at $14.78, and closed its opening day at $13.07 – up 7 cents from the high end of its IPO filing range.

In the end, Square raised $218.2 million, selling shareholders got another $11.5 million, and the bankers collected $13.4 million in underwriting fees. And this time, the investors who got stock at the IPO price and still owned it at the close, sailed away with a paper profit of 45.2 percent.

This was a rare event, very rare. Reducing the offering terms of an IPO and getting a huge open-day pop: This normally doesn’t happen. Let’s turn to the U.S. Securities and Exchange Commission filings dating from January 2000 to the present to get the picture.

By the Numbers

From January 2000 through November 2015, a total of 2,659 IPOs have been priced. This excludes unit offerings, bank conversions and foreign companies offering stock in the U.S. capital markets when their shares have been traded on their own stock exchanges.

The closing-day scorecard for all 2,659 IPOs reads:

Up: 1,886

Down: 580

Unchanged: 193

Average opening-day gain for all 2,659: 23.2 percent

A little over a third of the IPOs had to be cut in size to meet limited investor demand. Wall Street investment bankers are like New York City department stores. If something is not selling, cut the price and have a bargain-basement sale.

From January 2000 through November 2015, a total of 914 IPOs were reduced in size.

The closing-day scorecard for all 914 of those IPOs reads:

Up: 466

Down: 335

Unchanged: 113

Average opening-day gain for all 914: 2.01 percent

Nope, you don’t get much bang for your buck at Wall Street’s IPO clearance sale.

A Solo Ahead of the Holiday

At press time, next week’s calendar had only one IPO. It is a “blank check” company. This one is called Andina Acquisition Corp II (ANDAU – proposed). It aims to invest in companies in South America’s Andean region, which consists of Chile, Colombia, Ecuador, Peru and Venezuela. The deal is a unit offering. Bankers expect to price 4 million shares at $10 each on Monday evening to start trading Tuesday morning on the NASDAQ.

After that, Wall Street will start to resemble a ghost town as investment bankers head out – if not to Grandma’s house, then perhaps to a swank destination – for the Thanksgiving holiday on Thursday. Trading will resume on Friday, of course, but many senior players will not be at their desks.

Nevertheless, we can look forward to December. It is early – and anything can happen.

Stay tuned.

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