There’s a strange new animal among the spirits of Wall Street: the cautious investment banker.
Born of the disastrous Facebook IPO, he is well-groomed, sober (thanks to 2008), and terrified of another flop. How do we know ? Investment bankers have dramatically underpriced IPOs this year, leaving scads of money on the table.
Bloomberg BusinessWeek reports that six U.S. companies that hit the market this year doubled in their first day of trading, a feat that, prior to this year, has happened just eight times since 2000, according to the Wall Street Journal. In somewhat simplified terms, investors were willing to pay twice as much for those companies as the bankers handling the offerings thought they would.
For Container Store - which closed its IPO Thursday night and saw its share price double in trading Friday - that would have meant an extra $225m. That’s roughly four months of sales for the Coppell retailer.
Another good example is Rocket Fuel, an online advertising company. Shares of the Redwood City outfit doubled overnight in late September, between the time the IPO closed and the time markets opened.
The trend to underestimating isn’t confined to a few hot offerings. Of the 190 companies that had IPOs in the U.S. this year, the average one-day return was 17%, a level not seen since the tech boom of the late-1990s, according to data from market research firm Dealogic.
To access the complete Bloomberg BusinessWeek article hit the link below:
image: © Rev Stan