ClubCorp Holdings' (MYCC) big name underwriters quiet period ends early this week. Investors may see a jump in MYCC's price as research reports are unveiled by the underwriters of the IPO. ClubCorp's less than stellar debut on the market - the IPO priced at $14, well short of the $16-18 expected range - should lead to a profusion of positive information from underwriters anxious to improve the firm's market position.
ClubCorp's IPO underwriters included a top Buffett (BRK.B) holding, Goldman Sachs (GS). Also, Jefferies and Co (JEF), Citi (C), BofA Merrill Lynch (BAC), Deutsche Bank (DB), Wells Fargo Securities, and Stephens Inc. underwrote this IPO and are expected to release favorable research reports.
Academic studies and our work over the past two years have shown a positive correlation between the number and visibility of IPO underwriters and the increase in share price leading up to the end of the underwriter quiet period, so MYCC's potent roster of underwriters is a highly encouraging sign.
The price typically begins to increase in the days approaching the end of the quiet period in anticipation of research reports being released, which savvy investors realize will be inevitably positive because underwriters would have no interest in releasing negative information about a firm that they just underwrote.
MYCC may see an increased in price surrounding the October close to the quiet period.
Unfortunately, MYCC has seen a rather anemic response to its IPO and in the weeks following its market debut; the stock has yet to break $16, the low end of the IPO's expected price range, and has hovered between $14 and $15 through the majority of its time on the market.
Given these disappointing figures, investors attempting to take advantage of the quiet period expiration should be prepared to sell shortly after the expiration if the shares appear to be returning to their previous weak price.
Founded in 1957, MYCC owns and operates golf, country, sports, alumni, and business clubs throughout the United States. The Dallas, Texas-based firm owns a total of 152 clubs, including 103 golf and country clubs, which form the bulk of its business. The firm owns much of the real estate underlying its clubs, which gives it significant flexibility and security in the management of its assets. The firm was acquired in 2006 by KSL, a leisure property private equity firm.
Recent membership growth has been relatively low - only a 2.6% between December 2012 and September 2013, which is problematic for a firm that generates over 50% of its revenues through membership fees. Even more concerning is that this poor growth comes on the tail end of significant efforts on the part of MYCC to attract new members through improved facilities; the firm "reinvented" 13 of its locations in 2012 and planned to reinvent another 11 clubs in 2013. The firm put approximately 8% of its revenues between 2007 and 2012 towards facility improvement.
CEO Eric Affeldt is both highly experienced and very well-connected in the hospitality industry. He has previously worked in executive positions at KSL, Doral Golf Resort and Spa, and General Aviation Holdings.
Additional disclosure: This article is neither a recommendation to buy or sell shares, and investors should always do their own research.