After originally lining up 11 deals to launch in Thursday's IPO market, the market's current volatility caused underwriters to pare that to two, indicating that the Nasdaq correction is starting to take a toll on the new-issues market.
Emerging from the backdrop of a Nasdaq Composite Index that lost another 93 points, or 2.5 percent, on Thursday after a 286-point plummet on Wednesday, Nuance Communications opened at $29.63, up 74 percent from its $17-per-share offering price.
In managing the 4.5 million share underwriting, Goldman Sachs, Thomas Weisel Partners, Dain Rauscher Wessels, and Wit Soundview took Nuance where Coolsavings.com (proposed Nasdaq symbol: CSAV), Hallmark Cards spin-off Crown Media Holdings (proposed Nasdaq: CRWN), and iSky (proposed Nasdaq symbol: ISKY) feared to tread -- into the public markets.
WHERE'S YOUR VALUE?
"When the market is as volatile as this, it is only natural that the new-issue pipe is going to narrow," says George Monahan, director of industry studies at the Securities Industry Association. "From the issuer's point of view, a deal can be held simply because it's disappointing to enter the market when you don't think your stock is going to be fairly valued."
Mr. Monahan points out that when an issue files with the Securities and Exchange Commission, the company has a certain valuation, or multiple, in mind representing what they and the underwriters think the company is worth.
"It doesn't matter whether it's price/earnings or price-to-sales, or whatever," explains Mr. Monahan. "The point is that, suddenly, that's all out of the window when you have a market decline that is hostile to everything, and multiples for the same company today are worth less than they were just one week ago."
THE RULES DON'T APPLY
Ashutosh Roy, chairman and CEO of eGain, laughs nervously when he thinks what could have happened if his company launched its IPO this week instead of last September.
"We certainly might have been talking from a different perspective," says Mr. Roy. "If the market then was as it is now, we might not have ended up with the market power that we have, and that might have inhibited our position."
Indeed, at least part of the reason that eGain was able to make a $78.6 million bid for fellow customer relationship management firm Inference was the high currency value gained from the company's IPO.
In September, eGain offered 5 million shares of common stock at $12 each. The stock soared 187.5 percent to $34.50 per share in its opening trade and ended its first day with the stock at $23 a share, for a 91.7 percent gain. The company's shares closed Thursday at $20.
"The overall market sentiment is one of extreme caution. If an economy-leading company like Microsoft can be downgraded [and off 34 percent from its 52-week high], it follows that sentiment is going to move lower," says Mr. Roy.
NUANCES BRING SUCCESS
Nuance, which makes voice integration software, finished up 100 percent from its $17 offer price at $33.94, with 6.7 million shares traded.
The company has about 27.4 million shares outstanding after the IPO, giving it a quick market capitalization of about $932 million. That's not bad for a company that in 1999 posted a loss of $19.5 million on sales of just over $19.5 million.
A quick look at the venture capitalist roster of companies with equity stakes in Nuance shows Mayfield Fund, with 11.9 percent of the company; U.S. Venture Partners, with a 10.7 percent stake; SRI International, with 10.1 percent; Cisco Systems, with 7.8 percent; and Goldman Sachs, with 5.4 percent.
SINA.COM FRAGILE
The only other tech company brave enough to launch an IPO Thursday was Sina.com, a Chinese portal -- but perhaps they should have waited. Also priced at $17 per share, Sina.com had a more modest debut as its 4 million share IPO closed at $20.69 per share, up 22 percent from its offer price.
Morgan Stanley Dean Witter and China International Capital acted as the joint lead managers of the underwriting for Sina.com (incorporated in the Cayman Islands), with Chase H & Q and Robertson Stephens acting as comanagers.
The company bills itself as an Internet destination network for Chinese communities worldwide, offering online news, entertainment, communities, and commerce. Asian Internet deals have been hits on Wall Street ever since China.com blew in with a bang last year. But that rally may be ending after Asiacontent.com's shaky debut on Wednesday.
Also with Goldman Sachs as the lead underwriting manager on the deal, Asiacontent.com sold 5 million shares of common stock at $14 per share in an offering that fell to $11 per share by the end of the day.
"That puts all the responsibility on the underwriter, who is duty-bound to support the deal," says Mr. Monahan. "But it doesn't make much sense to offer a deal that you don't believe can sustain itself. You end up shorting it and losing profit on the whole thing. Why do the deal in the first place?"
THINNING ON TOP
Perhaps Mr. Monahan's notion is why Rigel Pharmaceuticals (proposed Nasdaq symbol: RIGL) was one of several deals to disappear from Thursday's calendar. Also pushed back until market conditions are perhaps a bit warmer are Adolor (proposed Nasdaq symbol: ADLR) and Flonetwork (proposed Nasdaq symbol: FNWK).
At press time the only deal still on tap to test the market's sentiment toward new issues was the 4.5-million-share IPO for Zefer (proposed Nasdaq symbol: ZEFR), expected to begin trading this Friday. As an Internet consultant, Zefer offers analysis, planning, and technical support for companies that want to bring their businesses online.
"It's an infrastructure company ... an Internet plumbing company," says Mr. Roy. "Plumbing companies have a good chance in any market."
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