When you consider what has taken place in the stock market over the last 21 months, it may not come as a surprise that the Street is awash with secondary offerings.
Any banker will tell you it is difficult to raise capital in a bear market. From the market’s closing highs in October 2007 to their closing lows in March 2009, each of the popular indexes lost about 55 percent each.
That’ll do it.
On the other hand, raising capital in a bull market is a different story. From March 2009 closing lows to May 8 closing highs, each of the popular indexes popped with gains ranging from 31 percent to 39 percent.
That opened the door for companies to raise capital and, in some cases, much needed capital. But here’s a big difference between the secondary and IPO calendars.
Secondary Offerings
In the early 1980s, the U.S. Securities and Exchange Commission introduced Rule 415, known as shelf registration, which allows established companies to file financing plans for up to two years. The time span was extended to three years in December 2005. Rule 415 waived the usual cooling-off period between filings and pricings of stocks and bonds. This changed the syndicate department’s function from underwriter to block trader.
It became commonplace to see a company file financing plans, a banker to step up and take down securities, and then re-offer them to clients in a matter of minutes, like in today’s market.
Recently many of these secondary offerings were priced in the hole, below their previous closes, and they worked. Investors snapped up the shares and the stocks traded at premiums in the aftermarket.
This leads us to the next question: “How long will this last?”
The short answer: “Until they stop working.”
The IPO Market
Rule 415 did not include privately owned companies looking to float IPOs. They must file and then wait.
DigitalGlobe (NYSE: DGI), a satellite imagery provider, priced 14.7 million shares at $19 each last week, above its original filing range of $16 to $18 a share. The company filed for its IPO on April 14, 2008.
The IPO opened on Wednesday morning, May 13, at $23, sold as high as $25, and closed the week on Friday at $20.50, UP 7.89 percent from initial offering price.
The feedback was disappointment that the stock faded in the aftermarket.
Oh well, Now send in this week’s IPO calendar.
OpenTable (Nasdaq: OPEN – proposed) plans to price 3 million shares at $12 to $14 each on Wednesday evening, May 20, to trade on Thursday morning, May 20. The company filed for its IPO on Jan. 30, 2009.
Note: OpenTable will offer about 1.57 million shares and selling shareholders will offer about 1.43 million shares.
Based in San Francisco, OpenTable is a service provider enabling its users to make restaurant reservations online. The company has a history of steady revenue growth and profitability before taxes.
For the three months ending March 31, 2009, OpenTable reported net income before taxes of $887,000, UP 70.2 percent from net income before taxes $521,000 for the same period a year ago, and reported revenues of $15.99 million for the first three months of the year, UP 20.2 percent from revenues of $13.3 million for the same period a year ago.
SolarWinds (NYSE: SWI – proposed) plans to price 12.1 million shares at $9.50 to $11.50 each on Tuesday evening, May 19, to trade on Wednesday morning, May 20. The company filed for its IPO on Jan. 30, 2009.
Note: SolarWinds will offer 9 million shares and selling shareholders will offer about 3.1 million shares.
Based in Austin, Texas, SolarWinds is a provider of enterprise-class network management software designed by network professionals for network professionals.
For the three months ending March 31, 2009, SolarWinds reported net income $6 million, UP 42.9 percent from net income $4.2 million for the same period a year ago, and reported revenues of $24.1 million for the first three months of the year, UP 18.1 percent from revenues of $20.4 million for the same period a year ago.
The Aftermarket Outlook
OpenTable: Had the company gone public during the 1999/2000 Internet bubble, it would have been named OpenTable.com and its IPO would have scored an opening-day pop of 100 percent, 200 percent, 300 percent — or more.
A decade later, it’s a different story.
SolarWinds: Technology IPOs are “in” so far in 2009 and this deal is the “pick of the week,” according to the input received from the IPO handicappers whose professional opinions make up the consensus of the IPO SCOOP ratings.