It was just in August that practically every single initial public offering was trading above its IPO price.  The market had rallied significantly, and still rallied after that to just this week have a 10,000 handle on the DJIA.  Investors started warming to more risk-based capital, and investment bankers were finally able to get deals done.  Even waves and waves of secondary offerings were able to be absorbed merely by brokers being able to tell clients they could buy stock at an implied discount to the average price over the few days before.  But suddenly, the IPO market has turned out some real dogs with fleas.

Mistra Group (NYSE: MG) priced its offering at $12.50 on October 7.  While it traded as low as $12.17, it has escaped the hangman’s file of ‘busted deals’ as it is now a $13.51 stock.  The one thing that may have helped was that it priced under an initial range of $14 to $16 per share.  Talecris Biotherapeutics Holdings Corp. (NASDAQ: TLCR) also went into the busted category temporarily after hitting a low of $18.01 after a $19.00 pricing.  Fortunately, it is up at $19.97 so is also now out of the hangman’s eyes.  Still, an 8% gain and a 5% gain in this market might leave some investors feeling lonely.  Banco Santander Brasil S.A. (NYSE: BSBR) was a very large IPO of over 500 million shares at an implied $13.40, and this one got out of the “busted IPO” dungeon on Thursday and closed at $13.51 on Friday.  Before Thursday it had spent its 6 prior trading sessions as a busted IPO.

Emdeon Inc. (NYSE: EM) had traded above $18.00 briefly after its IPO priced at $15.50 in August. But now the healthcare revenue and payment cycle management solutions provider, which is supposed to be a healthcare winner ahead, closed down at $15.35 on Friday  and had been slightly lower during the week.  This was effectively a re-IPO as Emdeon had been public before after General Atlantic Partners acquired it and it also received an investment from Hellman & Friedman. It also has ties to James Clark, the Netscape founder and was part of Healtheon.

Colony Financial Inc. (NASDAQ: CLNY) came public late in September at $20.00 per share, and it closed down at $19.69 Friday and has traded as low as $19.25.  Interestingly enough, Friday’s $19.68 close looks to be the highest price since the IPO date.   Colony is a newly formed real estate finance company (mortgage REIT) that will focus primarily on acquiring, originating and managing commercial mortgage loans, which may be performing, sub-performing or non-performing loans, other commercial real estate-related debt investments, CMBS, REO properties and other real estate-related assets.

RailAmerica Inc. (NYSE: RA) has been a busted deal after this was brought public in a re-IPO by Fortress Investment Group LLC (NYSE: FIG) after going private in February 2007.  This short line and regional freight railroad operator came public at $15.00 per share on October 12, so it hardly has much trading behind it.  But its absolute highest print this last week was $14.78 and it closed on Friday at $14.26 for a 5% loser.

Apollo Commercial Real Estate Finance, Inc. (NYSE: ARI) came public at $20.00 on September 24.  This comes out of Apollo Global Management, LLC and it intends to originate and acquire senior performing commercial real estate mortgage loans, commercial real estate corporate debt and loans and to purchase legacy and newly originated investment grade CMBS, and other performing real estate debt investments.  The highest price this one has seen since the IPO was $19.20, and it closed down at $18.57 on Friday to make the tally come to a 7% loser.

Then comes Vitacost.com Inc. (NASDAQ: VITC), which operates as an online retailer of various nutritional supplements, and health and wellness products.  Its September 24 IPO priced at $12.00 yet has been very volatile in not so much of a good way.  It has traded above the $12.00 mark at $12.25 during the first week, but then shares went as low as $9.34 and closed on Friday at $10.75 for still more than a 10% discount to its IPO price.

There are other 10% and higher losers as well.  Echo Global Logistics, Inc. (NASDAQ: ECHO), which provides business process outsourcing serving the transportation and logistics needs, came public at $14.00 on October 2, and while it did briefly hit $14.23 it closed down at $12.50 on Friday for a loss of 10.7%.

Chemspec International Limited (NYSE: CPC) was brought public in June at $9.00.  This Chinese chemical compounds company has traded as high as $10.50 and as low as $6.63.  Its closing price of $7.79 on Friday gives it a loss of over 13%.

Shanda Games Limited (NASDAQ: GAME) has all the earmarks of a forced copy-cat IPO.  Since it is out of China and a copy-cat strategy, we’ll even call it a knock-off IPO.  This was a Shanda Interactive Entertainment Ltd. (NASDAQ: SNDA) ‘spin-off’ that is technically still under control of the parent and by the IPO prospectus will remain that way.  The inspiration for this was this the successful Changyou.com  (NASDAQ: CYOU) spin-off IPO from Sohu.com (NASDAQ: SOHU), which had effectively doubled when Shanda decided a knock-off strategy.  Shanda Games came public at $12.50 on September 25 and briefly hit $13.00.  Yet it also went under $10.00 and closed Friday at $10.32 to come to a 17.4% loser.

Cumberland Pharmaceuticals, Inc. (NASDAQ: CPIX) came public at $17.00 per share and its $75.2 million was to be used for potential acquisitions, the pending launch of the Company’s Caldolor(®) product for pain and fever, expansion of the Company’s hospital sales force, product development, debt repayment and general corporate purposes.  It also markets Acetadote(®) for the treatment of acetaminophen poisoning and Kristalose(®), a prescription strength laxative.  It turns out that IPO investors felt like they got too much of that powerful laxative.  This did go as high as $17.75, but then the blow-holes opened up despite 3 broker as issuing buy ratings.  Shares have gone under $13 and closed Friday at $13.40 for a loser by over 21%.  This one has some revenues and has been profitable.

Lastly, there is Omeros Corporation (NASDAQ: OMER).  This is a biotech play as a clinical-stage company committed to discovering, developing and commercializing products focused on inflammation and disorders of the central nervous system.  It came public at $10.00, already at the bottom of the $10 to $12 per share range, and its shares closed at $6.88 Friday to account for a whopping 31.2% loss for IPO buyers.  No one who bought this has made money as its highest post-IPO price looks to be $9.49.

The Blackstone Group (NYSE: BX) is weighing as many as eight IPOs or target-acquisition exits in the coming months according to multiple reports.  If it wants a smooth exit, it better consider making the deals as good for new IPO buyers as it is for Blackstone.  KKR wants to bring back the giant Dollar General as a public company despite the thought that the dollar-store investment play may have already seen its best days during the recession.

As Gordon Gecko would say, there are many dogs with fleas.  Some will do well in the future, but investors were just too shell-shocked from late 2008 into the first quarter of 2009 to buy up other peoples’ mess.  Investors feel little need to support a private equity-backed IPO where all the proceeds are going straight back to the private equity firms.  Companies that are unprofitable also have less appeal to investors.  And complicated structures also offer conservative investors much comfort.

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JON C. OGG
OCTOBER 17, 2009

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