Recent IPO pricings have ushered in a new strategy, at least for now ... and it's working.
Most of February's IPO traffic had drawn so little investor interest that it was necessary to cut their offering terms. And in many cases, the cuts were drastic.
For a change, investors got a break. They may not be putting in a bid on that yacht in New York City's harbor. Nevertheless, a champagne cork or two was popped, but more on this later.
Since the start of the month through Friday, Feb. 10, 13 IPOs have been priced, according to the U.S. Securities and Exchange Commission filings. Now here's where it gets interesting.
The original filing prices were so far out of line that investors revolted.
No less than 11 of February's 13 deals were reduced by the number of shares being offered - or their offering prices were cut - or both hit the chopping block. Those 11 IPOs raised $813 million, DOWN 55.8 percent from a planned $1.84 billion. That's a sharp cut in any language.
The good news for investors - they got "dead cat" bounces in the aftermarket. The average opening-day gain for those 11 deals getting cut was 15.4 percent. That was far better than the 11.1 percent opening-day gains for all IPOs priced in 2012.
But a "dead cat" bounce is not normal.
Consider this: From January 2000 through December 2009, 1,621 IPOs were priced and 514 were cut in size. The deals that were cut had an average opening-day gain of 1.94 percent. That was sharply lower than the 27.8 percent average opening-day gain for all 1,621 IPOs priced during the 2000/2009 decade.
Nevertheless, the question in today's IPO market is: How much longer will this game continue before bankers start filing more realistic pricing terms? Have fun, Cinderella, this ball will not last forever.
A Winning Strategy
The other new strategy involves the private equity investment firms and their portfolios of companies waiting to return to public life.
Last week's Caesar's Entertainment (NASDAQ:CZR) IPO of 1.8 million shares was priced at $9 each, which raised $16.2 million. That deal's terms could give a hint of the answer. It is to offer a tiny number of shares at a low price - a bargain price, if you wish - and see the stock soar in the aftermarket.
The ploy got Caesar's IPO out the door and its shares skyrocketed, closing its opening day at $15.39, UP 71 percent from its initial offering price. Nevertheless, the offering and closing prices were still well below the high end of its original filing range.
In November 2010, Caesar's planned to offer 31.3 million shares at $15 to $17 each before the deal was scrapped. And the outlook for such companies hadn't changed much until last week.
Caesar's IPO created a window where there had been none. And who is not far behind? Here are a couple in the IPO pipeline:
AMC Entertainment (AMC-OLD), the theatrical exhibition company, first filed for its IPO of $500 million on Dec. 9, 2007. Apollo, Bain, Carlyle Group and Spectrum Equity are listed in its prospectus as major shareholders.
Toys R Us (TOYS), the specialty retailer of toys and juvenile products, first filed for its IPO of $800 million on May 28, 2010. Bain Capital is listed in the prospectus as a major shareholder.
Sunshine and Clouds
This week's IPO calendar is sparse. There are just three deals and two are carryovers from last. However, the new face at the window comes from a hot IPO sector - a cloud-based provider.
Brightcove (NASDAQ:BCOV) plans to price 5 million shares at $10 to $12 each on Thursday evening. The IPO is expected to start trading Friday morning on the NASDAQ Global Market under the proposed symbol "BCOV." The joint-lead managers are Morgan Stanley and Stifel, Nicolaus Weisel. The co-managers are RBC Capital Markets, Pacific Crest Securities and Raymond James.
The company is a provider of cloud-based solutions for publishing and distributing professional digital media. Its Brightcove Video Cloud product was first offered in 2006. The company believes it is the world's leading online video platform. Based in Cambridge, Massachusetts, Brightcove was formed in 2004. It has about 312 employees.
Brightcove will offer all the 5 million shares in the deal. The company expects to have about 26.4 million shares outstanding after the offering.
Until last week's "special situations," the cloud-based providers were 2012 aftermarket top IPO performers. They were:
Greenway Medical Technologies (NYSE:GWAY) priced its IPO of 6.7 million shares at $10 each on Feb. 1 and it closed at $13.80 on Friday, Feb. 10, UP 38 percent from its initial offering price.
Guidewire Software (NYSE:GWRE) priced its IPO of 8.9 million shares at $13 each on Jan. 24 and it closed at $22.06 on Friday, UP 69.7 percent from its initial offering price.
And we have another cloud-based provider on the calendar for next week:
Bazaarvoice (NASDAQ:BV), but more on this later.
Disclosure: Neither the author nor anyone else on the IPOScoop.com staff has a position in any stocks mentioned, nor do they trade or invest in IPOs. The author and IPOScoop.com staff do not issue advice, recommendations or opinions.