Getting a new issue out the door in June revolved around an unusual combination- price wars and corporate accounting scandals. IPOs are getting done (34 new issues made it out in the second quarter), but the act of pricing is a very laborious task these days. There appears to be a tug-of-war over the all-important offer price, and investment banks no longer have the upper hand.
Several fund managers say that if overall stock prices remain inflated, why should IPO allocations continue to be doled out at double-digit offer prices, especially under such dire market conditions? Issuers themselves have been slinging it back at the underwriters. Investment bankers, desperate for fees and customers, aren’t leaving any money on the table, a fact emphasized by this year’s lack of “pops” – a significant increase from the offering and opening price of a stock.
Goldman Sachs slashed the price of Plumtree Software (Nasdaq: PLUM) twice before it went public on June 4. But the stock still opened at 50 cents below its offering price. Wary of the lack of pops, Printcafe Software (Nasdaq:PCAF) pursued a different strategy: It increased its price then dramatically decreased the number of shares to be sold, a successful move considering it capped out with a $10 offer price, the middle of its expected range. Demonstrating unwillingness by investment banks to discount, Inveresk Research Group (Nasdaq: IRGI) and Big 5 Sporting Goods (Nasdaq:BGFV) priced a full dollar below their expected range.
While investors and bankers sparred with each other over pricing, neither could do anything to avoid the carnage stemming from corporate scandals. Concern about alleged accounting misdeeds and earnings restatements at the likes of Enron, WorldCom and Tyco severely hampered the new issues market. Syndicates worked late not to fill the books but to confirm cancellations. Several deals on deck simply limped back to the day-to-day bench.