McData soars up 206 percent in IPO
EMC (NYSE: EMC) spin-off McData Corp., (Nasdaq: MCDT), one of the most anticipated offerings this year, closed up 57 9/16, or 206 percent, to 85 9/16 Wednesday.
It priced 12.5 million shares at $28 after raising its price range to $24-$26 a share from $19-$21.
McData is "as strong a name as you'll get in data storage," said Kenan Pollack of IPO Central. Data storage is an explosive growth area now, he added; companies such as Brocade (Nasdaq: BRCD) and Storage Networks (Nasdaq: STOR), which hit a high of 154 1/4 after going public at $27 a share in June are an example of what awaits McData in the aftermarket.
EMC, which acquired McData in December 1995 and turned it into a a company focused on designing, developing, manufacturing and selling fiber channel switches for connecting servers and storage systems, currently has 86.2 percent of the company's class A stock. It will hold 76.1 percent after the IPO.
Aside from a big-name parent and a hot hardware business, the company's financials are also solid. Losses are overshadowed by strong sales figures; net loss for the year ended December 31 was $1.62 million on revenue of $95.26 million, an improvement over the $5.12 million lost on revenue of $36.55 million in 1998.
Risks associated with the offering include the company's reliance on EMC and IBM (NYSE: IBM), which respectively accounted for about 74 percent and 15 percent of total revenue, for the six months ended June 30.
Proceeds from the offering will go to general corporate purposes, including repayment of $1.9 million in outstanding debt owed to McData Holdings Corp., a subsidiary of EMC.
The company's main competitor is Brocade Communications Inc. Other companies providing fiber channel switches and other products to the SAN market include Ancor Communications, Inc. (Nasdaq: ANCR), which is being bought by QLogic (Nasdaq: QLGC) and Gadzoox Networks, Inc.(Nasdaq: ZOOX).
The deal is being managed by Credit Suisse First Boston, Deutsche Banc Alex Brown and Merrill Lynch. >