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September 30, 2000

The IPO Market Inertia

By Omar Sacirbey

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  • The IPO Market Inertia

Lowestfare.com is not really a bad company. In fact, the Las Vegas-based online travel agency earlier this year was ranked third in unique visitors among its peers in the travel and tourism sector, by Media Metrix, a New York-based company that tracks demographics on Internet usage.

Bear Stearns, in a research report, called the company a "category killer." The company's noteworthy attribute, of sorts, is its modest profitability, posting some $13.7 million in net income in 1998, on revenue of $224.42 million.

But Lowestfare has yet to go public. It originally filed with the Securities and Exchange Commission on March 16, 1998.

That's 530 days in registration. And there's no sign that the company will make its move soon. The company last filed with the SEC back on April 27, 1999.

Lowestfare is symptomatic of scores of companies that have missed the window - or in Lowestfare's case, windows - to go public. Now they are jamming the new issues pipeline.

As of mid-September, 357 companies were in registration. Of those, 36 filed last year, while another six filed in 1998. Of the 295 companies that filed during the first quarter, 94 are still in registration, while 55 have been withdawn, leaving only 150 that, through early September, actually made it during the course of the year.

Analysts generally agree that once a company exceeds a certain amount of time in registration, the tougher it is for it to come out. With the pipeline loaded, it's perhaps not surprising that about 27 companies withdrew their filings in the last two months.

That means a storm of activity for the post-Labor Day new issues market as underwriters look to unload as many companies as they can through Thanksgiving.

To be sure, that won't be easy. "There's still a great appetite in the market. But there isn't a wide enough window in the market to push all of these deals through between Labor Day and Thanksgiving," said Jeffrey Evans, head of syndicate at New York-based Bluestone Capital Partners.

Not making it easier, analysts say, is a market that has become more selective. "Companies need more name recognition, or a niche that the market understands," said Howard Posner, a syndicate desk manager at St. Louis-based A.G. Edwards.

More importantly, companies need a "clear path to earnings" as well as positive earnings and cash flow, he added.

Nonetheless, the numbers indicate that scores of companies in the red continue to climb through the market window. Of the 141 companies that went public during the first quarter, for example, no fewer that 112 - or about four out of every five -- had sustained losses, according to their most recent SEC filings. That group includes some familiar dotcoms like Buy.com (Nasdaq: BUYX), Homegrocer.com (Nasdaq: HOMG), and Onvia.com (Nasdaq: ONVI), which between the three of them racked up 1999 losses exceeding $252.52 million.

Of the 100 companies that went public from July 1 through August 23, approximately two out of every three were in the red during 1999.

The ones that have made it are generally the ones that have raised the most money. According to one Street firm, 341 deals totaling $38 billion were completed through mid-August last year. During the same period this year, only 322 deals were completed - for $51 billion.