Besides a frightening stock market, there’s another thing that makes this week unusual. The IPO production line tends to dry up after July 1, according to U.S. Securities and Exchange Commission’s filings. Consider the following:
- 2007: The first IPO priced after July 1 was on July 2 and the next IPO was priced on July 17.
- 2006: The first IPO priced after July 1 was on July 11.
- 2005: The first IPO priced after July 1 was on July 7.
- 2004: The first IPO priced after July 1 was also on July 7.
- 2003: Two IPOs were priced on July 1, but only six IPOs were done during 2003’s entire first six months.
Let’s take a quick look at things.
This Week’s IPO Calendar
Two of this week’s IPOs are expected to be priced Tuesday evening to trade Wednesday morning. They are Energy Recovery (Nasdaq: ERII proposed), a manufacturer of devices for desalination of sea water, and Galiot Capital (NYSE: GTC proposed), a newly formed specialty finance company, or REIT. The other is expected to be priced Wednesday evening to trade Thursday morning. It is First Class Navigation (AMEX: FNV.U proposed), a SPAC.
An Ugly Stock Market
This isn’t pretty reading. A 20 percent retreat from a previous closing high is generally considered a bear market. On Friday June 27, 2008:
- The Dow Jones Industrial Average closed at 11,346.51, DOWN 19.9 percent from 14,164.53, its all-time closing high set on Oct. 9, 2007. (A 20 percent retreat would be a close of 11,331.62 or below.)
- The S&P 500 closed at 1,278.38, DOWN 18.3 percent from 1,565.16, its all-time closing high, also set on Oct. 9, 2007. (A 20 percent retreat would be a close of 1,252.12 or below.)
- The Nasdaq Composite Index spilled into bear market territory on Feb. 6, when it closed at 2,278.76, DOWN 20.3 per cent from its most recent closing high of 2,859.12, set on Oct. 31, 2007.
Nevertheless, with the subprime mess and its fallout, oil reaching for $150 per barrel and nothing but massive write- downs coming from Wall Street and the banking sector, there is a small bright light out there. It is the date on the calendar -– June 30. That ends the second quarter and first half of 2008.
On July 1, institutional “window dressing” and house cleaning for those periods will be over. That should leave portfolio managers in a position to do some bottom fishing for oversold stocks, if they wish.
Rethinking the Waterworks
Energy Recovery is a San Leandro, California-based manufacturer of energy recovery devices for water desalination using sea water reverse osmosis, or SWRO, to drive salt water through filtering membranes to produce fresh water.
Energy Recovery plans to price 14 million shares at $7 to $9 each to raise $112 million. The IPO is expected to start trading on Wednesday, July 2, 2008.
For the year ending December 31, 2007, Energy Recovery reported net income of $5.8 million on net revenues of $35.4 million, compared with net income of $2.4 million on net revenues of $20 million for the same period a year ago.
For the three months ending March 31, 2008, Energy Recovery reported net income of $947,000 on net revenues of $9.1 million, compared with net income of $1.1 million on net revenues of $7.1 million for the same period a year ago.
Formed in 2001, Energy Recovery has about 65 employees.
Underwriters: Citi and Goldman Sachs are the joint-lead managers. Acting as co-managers are HSBC, Janney Montgomery Scott and SEB Enskilda.
The Industry:
The Securities and Exchange Commission assigned the Primary Standard Industrial Classification Code Number 3559 (Special Industry Machinery) to Energy Recovery. The sub- sector can be found under the DJ U.S. Water Index (chart). It has been weak.
On June 27, 2008, the DJ U.S. Water Index closed at 522.61, DOWN 40.2 percent from 873.99 on August 9, 2007.
Across the Ocean
First Class Navigation is an Athens, Greece-based “blank check” company organized to acquire, through a merger, capital stock exchange, asset acquisition, stock purchase or other similar business combination, one or more vessels or one or more operating businesses in the shipping industry.
First Class Navigation plans to price 12.5 million units at $10 each to raise $125 million. Each unit consists of one common share and one warrant. The IPO is expected to start trading on Thursday, July 3, 2008.
Underwriters: Dahlman Rose and Ladenburg Thalmann are the joint-lead managers.
The Industry:
The Securities and Exchange Commission assigned the Primary Standard Industrial Classification Code Number 6770 (Blank Checks) to First Class Navigation. Dow Jones has no industry index for the “blank check” sector.
Mortgage Play
Galiot Capital is a New York City-based specialty finance company that will invest in residential mortgage-backed securities with the principal and interest guaranteed by a U.S. government agency or a U.S. government-sponsored entity. The company intends to elect and qualify to be taxed as a real estate investment trust, or REIT.
Galiot Capital plans to price 16.7 million shares at $15 each to raise $250 million. The IPO is expected to start trading on Wednesday, July 2, 2008.
Underwriters: Deutsche Bank Securities, Credit Suisse and Morgan Stanley are the joint-lead managers. Acting as co-managers are Banc of America Securities, Keefe, Bruyette & Woods and BNP Paribas.
The Industry:
The Securities and Exchange Commission assigned the Primary Standard Industrial Classification Code Number 6798 (real estate investment trusts) to Galiot Capital. The DJ U.S. Real Estate Investment Trusts Index (chart) has been weak.
On June 27, 2008, the DJ U.S. Real Estate Investment Trusts Index closed at 98.12, DOWN 24.6 percent from 130.19 on October 5, 2007.
There you have it for the week of June 30, 2008 –- three deals on the calendar. The script will be dictated by the overall stock market’s behavior.