Post-IPO disasters

IPOs are a huge event in a company's life, and definitely something to party about. That said, they're not the be all and end all that many expect them to be. Some turn into disasters.

IPOs (initial public offerings) are a huge event in a company's life and definitely worthy of celebration. That said, they're not the be all and end all that many expect them to be. Just ask the folks at Vonagewhat they think of their post-IPO fortunes.

Just as many things can go wrong after an IPO as before. And public companies have increased legal and financial scrutiny, plus the Sarbanes-Oxley tax to boot.

Sure, IPOs are a liquidity event, but that doesn't mean you'll necessarily cash out before things fall apart. The following ten companies, which I followed for some reason or other, fizzled after their IPOs:

Vonage - VOIPcompany went public in May of 2006 at $17, but it's been bad news ever since. Now trades around $1.

Conexant - This Rockwell spinoff's IPO priced at $17 in January of 1999, soared to over $100 a year later, then dropped precipitously. Now trading around a buck.

Transmeta - This microprocessor upstart pulled off a hot IPO in November of 2000, hit a high of $46, then dropped into the single digits just seven months later. Now trades around a quarter - that's right, $0.25 - adjusted for a 1 for 20 split last month.

Silicon Image - This digital display connectivity pioneer's IPO was priced at $23 in December of 1999, peaked at over $100, then dropped like a rock to $1.50 a year later. Now trades around $5.

LogicVision - The market never really got this one. Went public at $9 in November 2001, hit a whopping $15, then slid back into single digits. Now trades under a buck.

Numerical Technologies - This developer of silicon manufacturing technology went out at $22 in April of 2000, hit a high of $67 a few months later, then deflated to the single digits a few months after that. Sold to Synopsis in 2003 for $7 a share cash.

On Semiconductor - This Motorola semiconductor spinoff opened in the $20s in June of 2000, then dropped to below $1 within two years. Has clawed its way back up into the low teens.

Webvan - This famous dot.com closed its first day as a public company at $24 in November of 1999, peaked at $34, and traded as low as 28 cents a year later. Bankruptcy was just a formality.

AMI Semiconductor - This throwback to the old days of the semiconductor industry was really just overpriced. It went out at $20 in September of 2003, lost half its value, now trades in the $10 range, plus or minus a few bucks.

Refco - This one happened so fast, if you blinked you would have missed it. The derivatives brokerage closed a half billion dollar IPO, got caught in an accounting scandal that saw its CEO arrested, and then filed for chapter 11 bankruptcy protection ... all within two months.

These examples are by no means a scientific study. The point is simply that going public isn't always such a good idea.

Of course, the carrot for startups is the equity; you get a lot more of it than you do from an established company. But once you factor in the risk and long gestation time of startups, it's not at all clear that employees get a better return on their time investment.

As a practical matter, I've found that joining a beleaguered public company with a good chance of turning things around has a much better risk-reward profile than a startup. After all, a public company's equity is always liquid, while only a small percentage of startups go public.

In any case, if you join a startup expecting a big IPO, just remember: after all is said and done, you may get a big party, but that doesn't guarantee a big payoff.

 

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