The question is: At what level?
Judging from last week’s events, the guess is nearer the bottom rather than higher up.
Nevertheless, bankers managed to price one of five deals on last week’s IPO calendar and that one – the highly anticipated Mead Johnson (IPOScoop.com profile) (NYSE: MJN) (news, financials and related companies) offering – kept its head above the molten lava by week’s end. (More on that later.)
On Tuesday, Feb. 10, bankers had three IPOs on the calendar, set to be priced after the closing bell. The last time that three or more new issues were scheduled to get priced in a single evening was well over a year ago. We have to go back to the evening of Dec. 13, 2007, according to U.S. Securities and Exchange Commission filings.
Then the unexpected happened. Or maybe it was the norm in today’s volatile environment. The stock market tanked on Tuesday.
It wasn’t a gentle pullback.
The Dow Jones Industrial Average plunged 381.99 points, DOWN 4.6 percent from its previous close of 8,270.78; the Nasdaq Composite Index tumbled 66.83 points, DOWN 4.2 percent from its previous close of 1,591.56, and the Standard & Poor’s 500 lost 42.73 points, DOWN 4.9 percent from its previous close of 868.60.
Now that was a sell-off.
Wall Street’s Bravest
In spite of the bear market’s mauling of Wall Street that day, investment bankers forged ahead and priced the Mead Johnson IPO after the market’s close.
That broke the ice for the 2009 IPO season. The world had to wait about six weeks to see the year’s first IPO.
On Tuesday evening, Mead Johnson, the provider of the baby formula Enfamil, priced 30 million shares at $24 each to raise $720 million. That was above its original filing range of 25 million shares at $21 to $24 each. The IPO opened at $26 on Wednesday morning and closed the week at $26.81 – UP 11.7 percent from its initial offering price.
In the days that followed, the rest of the week’s IPO calendar of four deals completely melted away.
A Timely Lesson
If there’s a lesson to be learned, it’s this: Mead Johnson had a few things going for it that the others did not. Mead Johnson is a well-established company. It has been around for over 100 years. It is a leader in its industry. Its revenues total over $2 billion. And it is profitable.
That’s the message.
The IPO window is always open for such companies, even though the stock market and its IPO calendar may be swirling in the nether regions of Dante’s Inferno.
Mead Johnson pulled off the feat of going public in a very ugly market.
Revisiting 1998
Let’s step back now to another time and another bear market in recent memory.
The year was 1998. The U.S. stock market was in the midst of taking a nearly 30 percent hit over a three-month period.
On July 20, 1998, the Nasdaq Composite Index had closed at 2,014.25, its then all-time high. On Oct. 8, 1998, the Nasdaq closed at 1,419.12, losing 29.5 percent over a 12-week period. In the aftermath, the IPO calendar all but died.
September 1998 produced one deal, discounting two tiny small-cap offerings. The IPO was eBay (EBAY)(quote, news, charts and related companies), a San Jose-based provider of an online marketplace to sell goods and services.
On Sept. 24, 1998, eBay priced its IPO of 3.5 million shares at $18 each. The IPO opened at $53.50, traded 9.1 million shares, and closed its opening day at $46.38, UP 163.2 percent from its initial offering price.
(Note: After a series of stock splits, eBay’s offering price of $18 per share would be adjusted to 75 cents per share.)
Five more IPOs dribbled into the market in October 1998. In November and December 1998, bankers priced 40 IPOs. But the stock market was on a run again by then. The Nasdaq Composite Index closed out the year 1998 on another high at the time of 2,192.69.
For IPO bankers and investors alike, the option in 1998 was to wait for the stock market. The choice is almost identical now.
On Oct. 8, 1998, the Nasdaq Composite Index closed at 1,419.12. On Feb. 13, 2009, it closed at 1,534.36.