The U.S. debt crisis wrapped its fingers around the stock market and dragged it down to the sharpest single-week loss since the week ending Aug. 13, 2010. During this summer storm, the IPO calendar took its share of hits as well. The Dow Jones Industrial Average lost 4.24 percent last week, while the Nasdaq Composite Index lost 3.58 percent and the S&P 500 lost 3.92 percent. Looking back to last year and the week ending Aug. 13, 2010, the Dow lost 3.29 percent, the Nasdaq Composite lost 5.02 percent and the S&P 500 lost 3.78 percent.
Now back to the IPO market -- for a quick look at last week and a glimpse at this week. Last week, bankers planned to offer 12 IPOs. Eight were priced, with six finishing the week as winners, while three were postponed “due to market conditions” and one was pushed into this week.
This week, bankers plan to offer three IPOs. One is “the pick of the week,” while another is a REIT with no scheduled pricing date at press time, and the third is the carry-over deal set for a Dutch auction.
On the “Most Wanted” List
WageWorks (NYSE:WAGE), based in San Mateo, California, is a business service provider. Under better market conditions, its IPO might turn in an interesting opening-day performance, according to the IPO professionals.
WageWorks is an on-demand provider of tax-advantaged programs for consumer-directed health, commuter and other employee spending account benefits. Founded in 2000, WageWorks has about 793 employees. The company reported net income of $403 million on revenue of $115 million for the three months ended March 31, compared with a net loss of $24 million on revenue of $108.5 million for the same period a year ago. WageWorks plans to offer 5.77 million shares at $12 to $14 each to raise about $75 million.
The IPO is expected to be priced on Thursday evening, Aug. 4, and to trade on Friday morning. The stock exchange has not been determined, but WageWorks expects to trade under the proposed symbol “WAGE.” Joint-lead managers are Credit Suisse and William Blair.
American Capital Mortgage Investment (NASDAQ:MTGE) is a Bethesda, Maryland-based real estate investment trust. To borrow a page from Gertrude Stein: A REIT is a REIT is a REIT. The IPO professionals don’t expect opening-day moonshots from this sector. No pricing date had been set by Friday afternoon, July 29.
The Dutch Auction
WhiteGlove House Call Health (WGH), based in Austin, Texas, is designing and developing a new service-oriented health care delivery system using the Internet, social media, advanced technology, a membership-based (subscription) business model, and nurse practitioners.
What sets this deal apart from others is this IPO is coming to market as a “Dutch auction.” In other words, any qualified investor with a dollar, a dream and the right bid gets to buy shares at its offering price.The IPO’s offering price is determined by the highest price it takes to sell all the shares being offered.
Basically here’s how the Dutch auction system works: Qualified investors place their bids with the underwriters giving the number of shares they wish to buy and at what price. The lead underwriters, WR Hambrecht + Co. and Rodman & Renshaw in this offering, collect the bids and allocate shares, starting with the highest price, and work down until all the stock being offered is spoken for. It’s called “the clearing price.” Sometimes that becomes the offering price. Other times the offering price is pegged below its clearing price. It’s at the discretion of the underwriters.
The most notable Dutch auctions in U.S. IPO history have been Google (NASDAQ:GOOG) and Morningstar (NASDAQ:MORN). Google priced its IPO of 19.6 million shares at $85 each on Aug. 17, 2004. It closed its opening day at $100.34, up $15.34 per share, or up 18 percent, from its initial offering price. Morningstar priced its IPO of 7.6 million shares at $18.50 each on May 1, 2005. It closed its opening day at $20.05, up $1.55 per share, or up 8.4 percent, from its initial offering price.
But don’t go rushing out to jump on the first Dutch auction deal you see, thinking you’ll get a big opening-day pop. These deals are for investors, not flippers and the fast-buck artists. They are designed to get a fair price for both the investor and the issuer. Consider this: Over 20 Dutch auctions have been offered in the U.S. capital markets since 1999; the median average gain is 0.465 percent. And they had their share of winners and losers.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.