UPDATE: IPO OUTLOOK: Pricing May Be Rough For IPOs This Week
February 05 2012 - 10:50PM
Dow Jones News
After a spate of rocky debuts in the U.S. IPO market, this
coming week's slate of deals are going to be facing a tougher
pricing environment.
Of the eight initial public offerings that were expected to
trade this past week, three were postponed--two for market reasons,
one because it is being acquired--and three ended their first days
of trading down.
Two of the three losers, AVG Technologies N.V. (AVG) and U.S.
Silica Holdings Inc. (SLCA), were supposed to be oversubscribed and
priced within their expected ranges before sinking on their debuts,
a turn of events that can harden the hearts of even the most
optimistic investors.
"What I hear from IPO bulls and the type of investors that play
most deals is that they are likely to partake in fewer deals next
week, unless some semblance of reality comes back" into the
valuations that companies are seeking, said Scott Sweet, managing
director of research firm IPOBoutique.com.
What's coming for the week ahead is a group of middling IPOs
that aren't likely to knock anyone's socks off. The best of the
bunch is EPAM Systems Inc., which provides outsourced software
development and engineering from lower-cost workers in Central and
Eastern Europe. The company is looking to raise $133 million by
listing on the New York Stock Exchange Wednesday under the symbol
"EPAM."
EPAM, whose customers include Thomson Reuters Corp. (TRI),
Google Inc. (GOOG), and SAP AG (SAP), caters to independent
software vendors and technology companies who want to move aspects
of their tech development offshore to save money and time. In the
first nine months of 2011, EPAM's revenue rose 59%, to $239
million, and its net income nearly doubled, to $32 million.
Whether strong growth like that will result in a stock that
performs well isn't a sure thing. "EPAM is regarded as the best of
the week--as was AVG last week, so there you go," said Sweet.
The remainder of the calendar reads like this: ChemoCentryx
Inc., an unprofitable biopharmaceutical firm with no approved
products, which wants to raise $64 million on the Nasdaq as CCXI;
Roundy's Inc., a small Midwestern supermarket chain with negligible
same-store sales growth, which wants to raise $218 million on the
NYSE as "RNDY"; Ceres Inc., which is developing seeds for crops
like switchgrass that can be used as renewable energy feedstocks,
looking to raise $115 million on the Nasdaq as "CERE"; foreign
exchange trading portal FX Alliance Inc., which wants to raise
$80.6 million on the NYSE as "FX"; and Synacor Inc., an Internet
services provider with a history of losses, which wants to raise
$82 million on the Nasdaq as "SYNC."
Each offering has issues that are likely to cause investors to
push for bargain prices, especially following the poor showing of
U.S. Silica and AVG Technologies.
Roundy's doesn't have a track record of expanding far beyond its
current concentration in Wisconsin; it plans to open four to five
new stores a year in the Chicago area, where it now operates four
stores. Same-store sales have either declined or grown at a
miniscule pace in recent years, and it is competing against
national and regional chains, including Wal-Mart Stores Inc.
(WMT).
Ceres's conventionally bred seeds are still in the very early
stages of commercialization, with most of its revenue coming from
collaborative research and government grants, and any
biotech-manipulated seeds it develops would hit the market in 2016,
at the earliest. Not surprisingly, it's not profitable.
Foreign exchange trading portal FX Alliance benefited from
rising trading volumes from 2001 to 2010, but it experienced a 7%
decrease in total average daily trading volumes in the fourth
quarter of 2011 due to market uncertainty stemming from the
euro-zone crisis, and it expects these conditions to continue in
the near term into 2012 as long as the outcome of Europe's debt
crisis remains unsettled.
Synacor has experienced losses in every year other than 2009 and
the first three quarters of 2011. It says it expects to increase
its expenses as it grows its business.
Investors who didn't see great results this past week from their
IPO forays are going to be more cautious looking ahead, said Scott
Cutler, head of listings in the Americas for New York Stock
Exchange parent NYSE Euronext.
"It will be a discerning market," he said. "There's going to be
more pressure downward in terms of pricing."
-By Lynn Cowan, Dow Jones Newswires; 301-270-0323;
lynn.cowan@dowjones.com
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