IPO Market Buzzing, but That Doesn't Mean Health

The IPO market staged a revival Thursday as six companies went public — the busiest day in more than two years. But it was a disappointing comeback as most raised less than they had shot for and their shares either slid or sputtered.

The bottom line: Private equity firms are eager to discharge companies in their portfolios after a long drought nearly froze the capital markets, and investors think offering prices are too high. All the companies that went public Thursday, except for supply chain online software maker SPS Commerce Inc., priced below expectations or at the bottom of their expected range. SPS Commerce closed up $1.60, or 13.3 percent, to $13.60.

Adding to the day's disappointment, Canadian Internet protocol communications services company Mitel Networks Inc., was an "unmitigated disaster," said IPOBoutique analyst Scott Sweet. Its shares plunged 12 percent after it sold shares for $14 apiece to initial investors, well below the $18 to $20 it expected to get for them.

Well, prepare for more turbulence. The appetite for IPOs is still fragile enough that this downbeat day could weigh on future offerings, said John Fitzgibbon of IPOScoop.com.

"What we'll have to do is restart the engine. This obviously has a cooling effect on the IPO market," Fitzgibbon said.

Mitel was a tough sell. It has turned only one yearly profit since 2001 and competes with much bigger companies such as Cisco Systems Inc. and Avaya Inc. Another IPO that disappointed investors Thursday was Global Geophysical Services Inc., which raised $90 million, less than half the amount it had originally wanted to raise. The Missouri City, Texas provider of seismic data services to energy companies could do well as oil prices rise, but is heavily dependent on just three customers. Its stock ended its first trading day at $12, unchanged from where it priced.

Shares of biotechnology company Alimera Sciences Inc. also ended the day unchanged from its offering price, of $11. It has no drugs approved by the Food and Drug Administration and expects no revenue before 2011, at the earliest. The Alpharetta, Ga. company slashed its asking price from a range of $15 to $17, raising $72.1 million.

Another factor weighing on performance Thursday was the crowd of offerings. DynaVox Inc., a Pittsburgh maker of software that helps people with speech and learning disabilities, was thought to be a standout. Its proprietary software and growing profit margins had generated substantial buzz before the offering, but it may have been hurt by bad timing. It was the very last company out of the gate, beginning to change hands at noon.

"Once it came time for DynaVox to open, no one wanted to step up to the plate and commit," Sweet said. "Had it come out first, I think it would have done better."

Codexis Inc., a biofuels company backed by oil giant Royal Dutch Shell PLC, fared somewhat better. The Redwood City, Calif. company priced shares at the bottom of its expected range, but once it started trading it gained 26 cents, or 2 percent, to close at $13.26.

Of all of Thursday's IPOs, only SPS Commerce raised more than it had hoped and saw shares soar. The Minneapolis company provides online supply chain management software. Its revenue grew 23 percent last year to $37.7 million, despite the recession, and it had positive cash flow for the first time since it was founded in 1997.

A seventh company, real estate investment trust Excel Trust Inc., didn't make it to market. The San Diego company had hoped to raise $255 million, which would have been the largest of the group.