The IPO Buzz: IPO Markdowns and Magic

Last week’s opening-day report card showed eight winners and two losers. The average gain for all 10 was 5.26 percent. That’s well above the recent 10-year average for marked-down IPOs.  

 

Let’s reach into the archives and dust off the IPO history books at the U.S. Securities and Exchange Commission: The records show that 1,592 IPOs have been priced over the last 10 years. (This excludes unit offerings consisting of common stock and warrants, closed-end funds, business development companies and foreign companies offering American Depositary Shares, which represent ordinary shares already listed on their own national stock exchanges.)

 

From May 1, 2004, through April 18, 2014, 578 IPOs were priced below their original filing terms. That’s 29.6 percent of the traffic. Last week’s traffic was 100 percent.

 

Of the 578 IPOs priced below range, 284 closed out their opening day as winners, 233 were losers, and 71 finished unchanged from their initial offering prices.

 

Now here’s what is important: the return to investors.

 

Cutting an IPO’s size did not guarantee a big payday for investors. The average opening-day gain for the 578 IPOs priced below range over the past decade was 1.77 percent.

 

In contrast, last week’s 10 IPOs priced below range had an average opening-day gain of 5.26 percent. That’s nearly three times the average gain for this category of deals over the past 10 years.

 

But these percentages are well below the average opening-day gain for the 1,014 IPOs priced within and above their original filing ranges. That is 19.1 percent.

 

Let’s take a look at the best and the worst from the marked-down IPOs from the past.

 

Electro-Optical Sciences (changed its name to MELA Science (MELA) in May 2010) scored the sharpest opening-day gain among those IPOs priced below range. It was a whopping 54.2 percent. On Oct. 27, 2005, Electro-Optical priced its IPO of 4 million shares at $5 each. That was down from 4 million shares at $5.50 to $6.50 each. It opened at $6.50 and closed its opening day at $7.71. It recently traded at 54 cents per share. 

 

ORBCOMM (ORBC) scored the sharpest opening-day loss among those IPOs priced below range. It was down 29.6 percent. On Nov. 1, 2006, ORBCOMM priced its IPO of 9.2 million shares at $11 each. That was down from 11.2 million shares at $12 to $14 each. It opened at $11 and closed its opening day at $7.75. It recently traded at $6.55 per share.

 

That brings us to this week and three recycled deals. Each has been on past calendars. One has already seen a price cut.

 

Quotient (QTNT – proposed) is a United Kingdom-based commercial-stage diagnostics company looking to reduce healthcare costs and improve patient care in providing tests for blood grouping and serological disease screening. The offer’s size has been reduced to 5 million shares at $9 to $11 each, DOWN from 5 million shares at $14 to $16 each. (For more information, please click here: Quotient)

 

With earnings season starting and hopefully a better stock market, who knows what is waiting in the wings to step on the IPO calendar?

 

Stay tuned.