Market jitters cause IPOs to dwindle
The pickings of initial public offerings are particularly slim this week, as only half a dozen deals prepare to launch.
"It's one of the lowest weeks we've had in a long time," said Jeff Hirschkorn, senior analyst with IPO.com.
It's no surprise the number has dwindled to just a handful, given the Nasdaq's continued decline from its mid-March high of 5048.62 and the markets' volatility. During this time, the index has slid 25 percent and many companies have postponed their IPOs.
Birch Telecom, Inventa Technologies and Camtek formally postponed their deals last week, while Communications Telesystems and Dollar Express chose a buyout of their companies rather than continuing with an IPO.
By the end of last week, only five of the 16 deals originally scheduled were able to debut--the most notable being the AT&T Wireless offering. The AT&T tracking stock received a tepid response, adding nearly 8.5 percent from its $29.50 offer price to close at $31.81 for the day.
This week, six deals are expected to debut, but three of those deals include offerings that have been carried over from previous weeks. Among the deals, expected to raise a total of $344 million, are MGi2, a business-to-business investment company; DigitalWork.com, an online small-business services company; and Qualstar, an electronic data storage company.
"There's nothing sexy about these deals," Hirschkorn lamented.
IPO analysts noted that DigitalWork has been trying to float its IPO for the past several weeks, while Mgi2's principal operating subsidiary has posted declining revenues. Qualstar, meanwhile, is a small-cap deal that will likely face tough times in this down market.
"DigitalWork has tried to do its IPO for the last couple of weeks, and there's no guarantee it will get done next week," said Hirschkorn.
The company is seeking to raise up to $81.3 million, based on the high end of its $11 to $13 pricing range and 6.25 million shares it will offer. The company plans to trade under the ticker "DWRK" and is being underwritten by Lehman Brothers.
Last year, the company generated revenues of $1.9 million and lost $15.7 million.
Nonetheless, the company is in a growing market. International Data Corp. expects small businesses to increase their e-commerce spending to $106.8 billion in 2002 from $6.2 billion in 1998. One of DigitalWork's competitors, OnVia.com, went public earlier this year and traded up roughly threefold from its $21 offer price on its first day. But that was under better market conditions, and today Onvia is underwater, trading at around $9 a share.
"But barriers to success are very high.
And what these companies are trying to do is be the first to aggregate small businesses and lock in that customer base. Once they get the critical mass, then that's when they'll have the advantage," Ederer said.
Ederer, citing IDC figures, noted small businesses are expected to grow to 38.5 million in 2002 from 29.6 million last year. And the percentage that will be online will soar to 75 percent in 2002 from 52 percent last year.
Meanwhile, Qualstar is seeking to raise $39 million, based on the high end of its $10 to $12 price range and 3.25 million shares it will offer. The company, which is being underwritten by First Security Van Kasper and Needham & Co., will trade under the ticker "QBAK."
The company posted revenues of $22.5 million for the six-month period ending Dec. 31, compared with $12.7 million a year ago. Its net income rose to $3.6 million in the period, up from $1.6 million a year earlier.
MGi2, meanwhile, hopes to raise up to $17.1 million, based on the high end of its $7 to $9 price range and mere 1.9 million shares it will offer. The company will trade under the ticker "MGE." Capital West is the lead underwriter.
Although MGi2 is a 3-month-old company, its principal operating subsidiary, McFarland Grossman & Co., has been around for more than five years. But last year, investment bank McFarland posted declining revenues.
McFarland generated $1.1 million in revenues last year, down from $3 million in the previous year. And it posted a loss of $297,397 last year, compared with a gain of $137,780 a year earlier.
After the offering, McFarland will be one of three business units for Mgi2. The others will be MGi2 Ventures and MGi2 Capital.