The deal was the 10.5-million-share offering of Grand Canyon Education (Nasdaq: LOPE), a Phoenix-based provider of online post-secondary education services. It was priced on Wednesday at $12 — well below its original price range of $18 to $20 per share.
On Thursday morning, the Grand Canyon IPO started trading at $10 per share — $2 below where it was priced.
Here’s how it came down:
- On May 13, 2008, Grand Canyon filed for an IPO to raise $230 million.
- On Sept. 29, Grand Canyon set proposed terms to price 10.5 million shares at $18 to $20 each to raise $199.5 million (the midpoint between its price range).
- On Nov. 6, Grand Canyon lowered its price range to $16 to $18 each to raise $178.5 million.
- On Nov. 19, Grand Canyon lowered its price range again — this time to $12 to $14 each to raise $136.5 million. It was priced on the low end of the latest range.
Nevertheless, the IPO closed the week at $12.35, UP 2.9 percent from its initial offering price.
When a Deal Gets Cut
Looking at the opening-day performances from the present through 2005, bankers priced 647 IPOs (excluding unit offerings), according to U.S. Securities and Exchange Commission filings. The average opening-gain for all 647 IPOs was 14.05 percent.
During that time, 215 IPOs were priced below their original filing ranges. The average opening-day gain for those 215 IPOs was only 0.76 percent.
Year-by-year opening-day performances:
2008
- 32 IPOs priced – average opening-day gain: 9.38 percent
- 15 IPOs priced below filing range – average opening-day loss: 3.29 percent
2007
- 212 IPOs priced – average opening-day gain: 15.27 percent
- 61 IPOs priced below filing range – average opening-day loss: 0.62 percent
2006
- 201 IPOs priced – average opening-day gain: 13.52 percent
- 70 IPOs priced below filing range – average opening-day gain: 2.52 percent
2005
- 202 IPOs priced – average opening-day gain: 14.08 percent
- 69 IPOs priced below filing range – average opening-day gain: 1.17 percent
Nevertheless, Grand Canyon turned in a great showing considering the headwinds it was bucking.
For the week, the Nasdaq Composite Index got popped for an 8.74 percent loss and was down 47.8 percent for the year.
The deal was carrying some heavy baggage, according to its prospectus. If the numbers were correct, then the amount that Grand Canyon raised from its IPO – $126 million – did not cover its costs and cash distributions. Consider the following:
Gross proceeds from the sale: $126 million
- Underwriting discounts (fees): $8.8 million
- Other Expenses (a): $6.1 million
- Special distributions (b): $116.8 million
Total estimated expenses and payouts: $131.7 million
Shortfall: $5.7 million
The Insiders
The VCs collected $66.6 million, while officers and directors got another $50.2 million. After the offering, they still owned 29.7 million shares of Grand Canyon with a market value of nearly $367 million. You could almost hear champagne corks popping from their yachts in New York City’s harbor.
The Customers
They couldn’t afford yachts or champagne. They had a first- day loss of 15 cents per share. But by week’s end, the investors had a profit of 35 cents a share.
Notes:
(a) “Other Expenses of Issuance and Distribution borne solely by the registrant:” $6.1 million (see: SEC filing)
(b) From the prospectus: “Seventy-five percent (75%) of the gross proceeds from the sale of stock in this offering, before underwriting discounts and commissions and estimated offering expenses, will be paid to our existing stockholders as a special distribution.” (See: Prospectus)