NetSuite IPO Wins Fair-Value Fans

SAN FRANCISCO -- While NetSuite's(N Quote) newly minted shareholders may feel first-trading-day blues, look for the company's Dutch auction-style IPO process to be repeated more in 2008.

NetSuite shares priced Wednesday at $26 and were trading recently at $27.75, only 6.7% higher. Holders of the new issue accustomed to seeing a first-trading day lift in the high double-digits may feel as though the Grinch stole their payoff.

But for NetSuite and its venture investors, the stock's performance Thursday proves they made a wise choice by forgoing the typical placement of shares. The deal raised $161.2 million for NetSuite, approximately double the base price the company had filed to raise. It also gave the company a market cap above $1.55 billion.

"The early big winner here is undoubtedly NetSuite, and the losers -- the investors -- are left questioning why they put in bids that were unrealistic," IPO Boutique analyst Scott Sweet wrote in a note Thursday.

"In past Dutch auction deals, and it appears the same in this case, investors put in overzealous high bids to 'beat' others in a scramble to get shares," Sweet stated. "It is highly likely that it has ... overvalued the company."

Dutch auctions set up a bidding process to find an optimal market price for the stock, the lowest price at which an issuing company can sell all the available shares. Typically, IPO prices are set by underwriters using a negotiated pricing process.