The IPO Buzz: Turning the Playbook Upside Down

The IPO traffic did a flip-flop from its traditional opening-day playbook last week. A REIT IPO popped at the opening while a tech IPO flopped. It usually happens the other way around. The  reasons for this surprising scenario can be found in a couple of numbers – seven, long regarded by gamblers as a lucky number, and 14, an age that many of us would not revisit for anything.

A REIT Strikes It Rich

MGM Growth Properties LLC (MGP) priced its IPO of 50 million shares at $21 each to raise $1.05 billion. It started trading at $22.75 per share, UP $1.75 per share, or UP 8.3 percent. In the past, REIT IPOs have generally started trading around their initial public offering prices.

MGM Growth was recently formed as a Las Vegas-based real estate investment trust (REIT) to acquire, own and lease entertainment and leisure resorts, including casino gaming, hotel, convention, dining, retail and entertainment properties.

Here’s the reason why it rocked: The Wall Street buzz was that people were looking at this deal as a gambling stock with a 7 percent yield. The gambling sector, as measured by the Dow Jones U.S. Gaming Index (DJUSCA), has been strong. It closed Friday, April 22, 2016, at 615.68, UP 30.9 percent from 470.23 on Feb. 9, 2016, its recent closing low.

Note: There is a gambling IPO on this week’s calendar, but more about that later.

A Tech Deal Stubs Its Toe

SecureWorks (SCWX) priced its IPO of 8 million shares at $14 each to raise $112 million. It started trading at $13.91, DOWN 9 cents or DOWN 0.6 percent. The deal had been cut from 9 million shares at $15.50 to $17.50 each.

SecureWorks, a spinoff from Dell, is a global provider of intelligence-driven information security solutions focused on protecting clients from cyberattacks.

Here’s the reason why it slumped: When the SecureWorks deal was first filed, people expected a good opening-day pop from the first tech IPO since the Dec. 10, 2015, offering of Atlassian Corporation Plc (TEAM). Atlassian provides collaboration software for product development teams of all sizes to plan, build and launch products. It priced its IPO of 22 million shares at $21 each and started trading at $27.67, UP 31.8 percent from its initial offering price. But SecureWorks was no Atlassian. Questions started surfacing about its valuation.

Note: For the fiscal year ended Jan. 29, 2016, SecureWorks reported a net loss of $72.4 million, UP from a net loss of $38.5 million a year ago. It had an accumulated deficit of $122.6 million, according it its prospectus.

So that was the week that was.

This Week’s Snapshot

Now let’s move on to this week.

The IPO calendar lists three names, one from the gambling sector, another from China, and the third with stock that can be purchased on the Toronto Stock Exchange and the OTC market before its offering is priced in the U.S. capital markets. The names are: Red Rock Resorts (RRR – proposed), Yintech Investment Holdings Limited (YIN – proposed) and Global Water Resources

(GWRS – proposed).

What Happens in Vegas

Red Rock Resorts, originally filed as Station Casino, is a Las Vegas-based gaming, development and management company operating 21 casino and entertainment properties. It also manages and develops Native American gaming facilities in northern California and western Michigan.

For the year ended Dec. 31, 2015, Red Rock reported net income of $137.7 million on gross revenue of $1.35 billion, UP from net income of $100.5 million on gross revenue of $1.29 billion from a year ago.

Bankers plan to price 27.3 million shares at $18 to $21 each Tuesday evening, April 26, to trade Wednesday, April 27, on the Nasdaq Stock Market.

China’s Golden Trade

Yintech, based in Shanghai, believes it is the largest online provider of spot commodity trading services in China. The company facilitates trading by individual customers of silver, gold and other precious metals and commodities on three leading exchanges, such as the Shanghai Gold Exchange, the Tianjin Precious Metals Exchange and the Guangdong Precious Metals Exchange.

For the three months ended March 31, 2016, Yintech reported net income of RMB149.3 million (US$23 million) on total revenue of RMB403 million (US$62.2 million), UP from net income of RMB82.9 million on total revenue of RMB255.3 million from a year ago.

Bankers plan to price 7.5 million American Depositary Shares at $12.50 to $14.50 each Tuesday evening, April 26, to trade Wednesday, April 27, on the NASDAQ Global Select Market.

Water Today, Recycle Tomorrow

Global Water Resources, based in Phoenix, Arizona, is a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities. It owns nine water and wastewater utilities in the metropolitan Phoenix area.

Note from the prospectus: “The common shares of GWR Global Water Resources Corp., which currently owns approximately 47.8% of our outstanding common stock, are publicly listed on the Toronto Stock Exchange (under the symbol GWR and on the U.S. OTC market under the symbol GWGWF). Concurrently with the consummation of this offering, GWR Global Water Resources Corp. will merge with and into us and on the effectiveness of the merger, all of the outstanding common shares of GWR Global Water Resources Corp. will be exchanged for shares of our common stock.”

Bankers plan to price 1 million shares at $5.25 to $6.25 each mid-week to trade on the Nasdaq Stock Market.

Looking into the week of May 2, 2016, the IPO calendar now has one small-cap offering expecting to raise about $25 million. But anything could happen on Monday morning, April 25, to shape the agenda for the first week of May.

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 opinion.