A Review Of Last Week's IPOs - Part VI

Includes: ADNC, IRG, WAGE, WMC
by: The Value Investor

Despite a recent correction in global equity markets the initial public offering market remains readily accessible. This week I will review the initial public offerings for the week of May 7 till 11 May.

Last week's IPO's

Four companies decided it was time to go public last week. Western Asset Mortgage Capital (NYSE:WMC), WageWorks (NYSE:WAGE) Audience (NASDAQ:ADNC) and Ignite Restaurant Group (NASDAQ:IRG) took the jump and got their listing.

At first sight the IPO's were a great success. On average these companies returned 17.4% on their opening day while their total returns since inception fell to 9.2% amidst a slump in global equity markets. Shares of WageWorks saw a particular strong first day jump but have given up most parts of the gains, while Ignite Restaurants Group managed to expand their first day gains. Western Asset Mortgage Capital saw its shares fall on their debut day by some 6.2% and now trade 8% below their offering price.

In total the sample above managed to raise some $400 million in order to finance their business objectives and growth plans, or provide existing shareholders with a cash out.

Western Asset Mortgage Capital

This investment firm which currently does not have any operations will focus on investments in residential mortgage backed securities which are issued or guaranteed by the US government or any of its agencies. A subsidiary of Legg Mason (NYSE:LM) will manage the fund.


The provider of tax-advantaged plans for health, commuter and employee spending account benefits saw a successful opening day, but shares have retreated now trading in a $10-$11 price range. The company managed to raise $58 million by selling 6.5 million shares. Initially it planned to sell its shares for $10-$12 but in coordination with its underwriters the offering price has been lowered to $9 in order to induce demand. The company will add the cash raised to its strong balance sheet (for 2011 the company held a net cash position of $140 million). The company which has over 5,000 corporate clients reported $124 million in revenues for 2011 which values the firm at 2.2 times annual revenues.


The provider of voice and audio services which improve voice quality and user experiences for mobile devices had seen a successful debut. Shares traded around the $20 mark in the first trading days before falling back towards the offering price at $17. This is still far above the initially guided price range of $14-$16 for the shares. In 2011 the company generated $98 million in revenues on which it net earned $8 million. The company is valued at 3.4 times annual revenues. Audience warned that the transformation of its business model, from processor sales to royalties, could lead to a decline in revenues if unit sales do not continue to expand. In the first quarter of 2012 Audience reported a 9% revenue increase to $31.1 million.

Ignite Restaurant Group

The operator of franchise formulas Joe's Crab Shack and Brick House Tavern+Tap traded in a tight $17-$18 range after going public for $14 per share. In 2011 the company generated $405 million in revenue on which it earned a mere $11 million. The gross proceeds of $81 million from the offering will be used to service its $115 million debt position and to open 11 new restaurants for 2012, bringing its total number of restaurants to 149. As most of its restaurants are Joe's Crab Shack's the company warned that crab prices are expected to remain high for 2012 and holiday spending is a risk as many of its restaurants are located at waterfronts near tourist destinations.


We have seen a mixed bag in terms of performance of the public offerings this week. Ignite Restaurant Group performed well after settings its offering price above the initial guided price range but WageWork's returns were only made possible after lowering the offering price as shares still trade below their initial target price despite a 15% return. Western Asset Mortgage's offering was an outright disaster as shareholders have already lost 8%.

The public offering market remains accessible despite worries about a Chinese economic slowdown and a resurface of European Sovereign Debt issues which triggered a recent sell-off in equity markets.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.