This Week in IPOs

With this column we introduce Ben Holmes, the founder of ipoPros.com, a Colorado-based research boutique specializing in analysis of equity syndicate offerings. Ben developed his craft as a hedge fund manager with Worldwide Capital Corp. on Long Island, where he managed positions in IPOs and follow-on offerings. In 1997, he started ipoPros (www.ipoPros.com) to bring IPO and follow-on research to individual and professional syndicate investors. During his career, he has participated in more than 2,000 IPOs and secondary offerings. Neither Ben Holmes nor ipoPros has a position in, or has requested any shares in, the offerings mentioned in this column.

As a professional involved in the new-issues market for the past 11 years, I have come to view the ups and downs of the IPO market with a somewhat jaundiced eye. And for much of the past decade, the new-issues market remained an insider's game, which only the institutions could play and win.

But the Internet has changed all that, at least if you follow what some individual investors are doing, thanks to the availability of the hottest IPOs through DLJdirect, Wit Capital and E*Trade.

This occurred to me while standing in line at the local sushi joint here in Boulder, Colo. My wife and I struck up a conversation with the man ahead of us, and when small talk turned to "what do you do?" he told us that he had quit his job as a real estate broker to daytrade the stock market. I asked him if he ever got involved in IPOs.

"Oh yeah," he said, grinning. "I got a little iVillage (IVIL Quote), a few hundred shares of Critical Path (CPTH Quote) and some ZDNet (ZDZ Quote), but the real killer was priceline (PCLN Quote). I made 20 grand on that one."

I smiled knowingly at the man and noticed that he had broken a slight sweat while talking. I had seen this before. Just then a woman who was seated close to the door leaned her chair toward us and interrupted, "You're talking about IPOs? I sold my Multex (MLTX Quote) stock up 22 points on the first day!" she exclaimed.

I congratulated her on her winnings and stared at the droplets of perspiration that had formed on her upper lip. Another victim. Sad.

My wife looked at me, her eyes conveying the understanding and sympathy that she felt for me -- the same sympathy that I now had for these two people. The IPO virus was spreading.

While I make light of the public being infected with the new-issues bug, I cannot help but think about how it might end. The opening up of the syndicates to individual investors last fall just happened to coincide with the beginning of what has become the hottest IPO market cycle in more than five years.

What this new crop of IPO buyers has not yet lived through is the swift and violent way in which these cycles inevitably end. Will they recognize the turn when it arrives? Or, will these tenderfoots continue feeding on the low-quality deals that are typically shoved through the door in the last moments of a dying market cycle?

I guess we'll deal with that day when it comes. But for now, at least from where I sit, this is the healthiest IPO market I've seen in this decade. The public's demand is growing by the day, the supply is healthy in terms of both quality and quantity, and there's no slowdown in sight.

The question we all have been forced to at least acknowledge is that of valuations and the sometimes laughable first-day premiums the Internet IPOs have displayed in recent months. This has made the job of analysis a little more difficult than usual, but the reality is that the trend continues.

And for those who dismiss the current market as the latest incarnation of tulip-bulb mania, I ask: Who is the greater fool: the person who stays out of the IPO market citing ridiculous valuations or the one who continues to sell his or her new-issue shares up 20, 30, 40 points?

The Week Ahead

Last week we saw a fairly heavy calendar of offerings, many of which were excellent performers in their first-day sessions. Obviously, anyone involved in the IPOs of Extreme Networks (EXTR Quote), ITurf (TURF Quote), Rhythms Netconnections (RTHM Quote), or US Internetworking (USIX Quote) had to be pleased with the price gains they received. Now, into the second quarter's third week, it looks like this IPO cycle continues to push ahead.

This week looks to be another busy one for syndicate players. With 13 deals -- eight IPOs and five follow-ons -- on the docket, there should be plenty to do for everyone involved in the new-issues game.

Getting down to business, here's a look at what's on tap for this week:

This Week's IPOs

Accredo Health
IPO:	(ACDO:Nasdaq)	Provides specialized contract pharmacy and related services beneficial to patients with certain costly, chronic diseases.
Deal size:	3 million shares
Price range:	15 to 17
Led by:	Hambrecht & Quist
My take: This is basically a solid deal, but will likely be eclipsed by the Internet deals.

Allegiance Telecom
Secondary:	(ALGX:Nasdaq)	Seeks to be a premier provider of telecommunications services to business, government and other institutional users.
Deal size:	12.85 million shares
Filing price:	March 18: 29 1/4
Led by:	Salomon Smith Barney
My take: The stock has done well since the announced follow-on, trading up about 25% from its announced price as of this writing. This is usually a good sign for a secondary.

Aremissoft
IPO:	(AREM:Nasdaq)	Develops, markets, implements and supports enterprise-wide applications software targeted to midsized organizations.
Deal size:	3.8 million shares
Price range:	10 to 12
Led by:	Cruttenden Roth
My take: Underwriter Cruttenden Roth has a recent feather in its cap with the Claimsnet (CLAI Quote) IPO last week. On the heels of that success, this IPO should be well received.

CompuCredit
IPO:	(CCRT:Nasdaq)	Is an information-based, technology-driven credit card company.
Deal size:	8.13 million shares
Price range:	15 to 17
Led by:	PaineWebber
My take: PaineWebber has been all but absent in this IPO market. There is little in this deal that argues for begging for shares.

Concur Technologies
Secondary:	(CNQR:Nasdaq)	Provides intranet-based employee-facing software applications that extend automation to employees throughout the enterprise.
Deal size:	2.9 million shares
Filing price:	March 17: 36 15/16
Led by:	BancBoston Robertson Stephens
My take: As of this writing, CNQR has traded up almost 30% over its filing price -- a good sign.

Doane Pet Care Enterprises
IPO:	(DPCE:Nasdaq)	Is the largest manufacturer of dry pet food in the U.S.
Deal size:	14.6 million shares
Price range:	11 to 13
Led by:	Donaldson Lufkin & Jenrette
My take: This one's a little long in the tooth. The original filing was withdrawn back on Oct. 6, 1998. The deal was refiled and subsequently reduced from 16,666,668 shares. Ruff.

eBay
Secondary:	(EBAY:Nasdaq)	Serves as the world's largest and most popular person-to-person trading community on the Internet.
Deal size:	6.5 million shares
Filing price:	March 23: 146 3/8
Led by:	Goldman Sachs
My take: This filing marks the end of the 180-day lock-up period for insider stock on the original eBay IPO done on Sept. 23, 1998. The stock has traded up 20% or so since the filing and 1,000% over the original issue price. One can only imagine the tension the insiders have endured while waiting for their chance to sell the IPO shares. My heart goes out to them (grin). Priced Tuesday morning at 170.

Engineered Support Systems
Secondary:	(EASI:Nasdaq)	Is a leading designer and manufacturer of military ground support equipment.
Deal size:	2.2 million shares
Filing price:	March 8: 16 3/4
Led by:	CIBC World Markets
My take: Yawn ...

MIH
IPO:	(MIHL:Nasdaq)	Is a multinational provider of pay-television services and pay-television technology.
Deal size:	8.3 million shares
Price range:	16 to 18
Led by:	Merrill Lynch
My take: Not a real hot group for IPOs lately. Antenna TV is probably the best comp I can come up with, and it was a nonevent. Priced Tuesday morning at 18.

Sagent Technology
IPO:	(SGNT:Nasdaq)	Develops, markets and supports software to address organizations' rapidly growing information access, analysis and delivery needs.
Deal size:	5 million shares
Price range:	7 to 9
Led by:	DLJ
My take: A well-spoken-for deal -- great underwriters, explosive revenues, but mounting losses, which are typical of this generation of IPOs. Should be OK.

School Specialty
Secondary:	(SCHS:Nasdaq)	Is the largest marketer of nontextbook educational supplies and furniture to schools for prekindergarten through 12th grade.
Deal size:	3 million shares
Filing price:	March 19: 20 11/16
Led by:	Goldman Sachs
My take: This one is a leftover from last week and I, for one, would like to get it off the calendar. Stock is down about 10% from the filing price as of this writing. Priced Tuesday morning at 18.25

Stancorp Financial Group
IPO:	(SFG:NYSE)	Serves as a leading provider of group life and disability insurance products, serving nearly 29,000 employer groups.
Deal size:	13.92 million shares
Price range:	21 to 25
Led by:	Goldman Sachs
My take: Insurance. Not a particularly hot area for IPOs these days, but it's established and profitable. The deal was reduced from 14.74 million shares. I don't think investors get hurt on this one, but be realistic about your expectations.

Worldgate Communications
IPO:	(WGAT:Nasdaq)	Provides a new television-based Internet service, Worldgate, that delivers the Internet through cable TV systems.
Deal size:	4.5 million shares
Price range:	12 to 14
Led by:	Gerard Klauer Mattison
My take: I'm hearing quite a bit about this one, and I put a fair amount of weight on the "buzz factor." Cable Internet is kind of sexy, but I have to wonder about the underwriting team of Gerard Klauer, Jefferies and Janney Montgomery Scott. While these are not bad people to have working for you, they lack the obvious sizzle of a Hambrecht, Goldman Sachs or Bear Stearns.