It was bad to be an IPO last week. For the most part, investors were really
not interested. Vacations seem to be the only thing on investors’ minds.
In fact, there was some awful punishment of IPOs. Take
Avistar Communications . Rather, it was equivalent to a burning star.
The lead underwriter, Chase H&Q, set a price range of $13-$15. Well, when
it came time for the IPO, the offering price was $12. The company raised a
paltry $36 million. But it gets worse. The company is required to use $12.5
million of these proceeds to pay off the debts for the three founders.
The stock opened up a fraction and then went into a tailspin. By the end of
trading, the stock was at $9.38. By Friday, the stock was $8.63 (the stock
was as low as $7.81). The market cap is $217 million.
Avistar develops technology systems to integrate video and data
collaboration over corporate enterprises and the Net. The biggest customer
(accounting for 43 percent of sales in 1999) is Chase Manhattan, which is
the parent company of Avistars lead underwriter, Chase H&Q. Then there is
UBS Warburg, which accounted for 23 percent of sales in 1999. This
investment bank is the parent of Warburg Dillon Read, which is a co-manager
of the Avistar IPO.
Of course, Avistar faces extreme competition. Competitors include such
heavyweights as VTEL and Polycom.
In light of all this, it is probably a good idea to avoid Avistar – even
though the stock price is quite low.
But there were some bright spots last week. Last Friday
Peco II had its IPO. The price range was
$14-$16 and the offering price was set at $15. At the close of trading, the
stock hit $23.
No doubt, the company is solid. It is a leading developer of power
systems focusing on the red hot communications sector. For the first six
months of 2000, sales were $74.2 million, which was up 101.9 percent from
the same period last year. Net income was $9.8 million. Customers include
Lucent, Verizon, and Sprint.
The stock may come down a bit, especially in the next few weeks. But
long-term, the company has much upside potential.
