April 24, 2010, 10:55 am

4/19 Week in Review

IPO Week in Review.

The week of 4/19, with eight deals pricings, was the busiest ipo week since the fall of 2007. Was a very average group overall and the pricing and initial aftermarket performance reinforced that case.

Ipo fallacy: 'It is all about the initial pop and the only way to make money is getting the deal and flipping on open'. Wrong, wrong wrong. Yes that case a decade ago, when the market was frothy and an ipo pricing at $13 routinely would open at $55. Quick fact: The initial ipo 'pop' from pricing since 1/1/09: 5 1/2%. The average gain(based on Friday's close) for ipos since 1/1/09: 13%. Most of the gains have been made in the aftermarket as was the case during the last bull run of 2003-2006. The first day is really not all that important, the key to making money over time with ipos is to find a deal that is overlooked and has the potential to appreciate over time.

A quick look at this week's deals with my thoughts.

EXL - Excel Trust: Priced 15 million shares at $14. Opened pretty much broken and closed down 5% at $13.30. EXL is a REIT focused on acquiring and owning retail community centers(strip malls essentially). Plan is to leverage up on mortgage debt to increase return to shareholders. Management has a solid track record, key here is whether one believes commercial real estate has bottomed. Minimal operations to date, this is one to look at down the line after a year or so to see how things are progressing. No interest in this deal.

ALIM - Alimera Sciences: Priced 6.6 million shares at $11. Closed Friday at $11.01, flat from pricing. ALIM is a development stage pharmaceutical focused on retina disease. Expected to have first candidate commercialized n early 2011. Question marks here include acceptance of their product as well as size of end market here. No interest in this deal either.

CDXS - Codexis: Priced 6 million shares at $13. Closed Friday at 14.04 for an 8% gain from pricing. Biocatalysts for biofuel and pharma. Large collaboration with Shell to develop biofuels. Not close to commercialization in biofuel segment, working initially as a 'green' and 'clean' fuel ipo. Highly speculative, will either be a home run or a below $5 stock in 2-3 years. I'd put odds on the latter, still too early to jump in here. No interest, although if CDXS/Shell are successful this has 'home run' potential.

DVOX - Dynavox: Priced 9.4 million shares at $15. Closed Friday at $15.18 a 1.2% increase over pricing. DVOX is the dominant market leader in assisted speech technology and devices. Makes products that speaks for those that cannot. Profitable since at least 2005, strong gross(75%) and operating margins(25%), should book a 35%+ revenue gain in FY '10 and earn $.63. I like this one a lot and believe it got lost in the shuffle of 'average' deals this week. The only ipo of the week I am currently long, this one has the potential to be a long term winner if they continue to execute. I see DVOX and FNGN(Financial Engines) as the two top deals of 2010 as far as appreciation potential from pricing 1-2 years out.

DHRM - Dehaier Medical Systems: 1.5 million shares priced at $8. This was an 'as offered' deal that was nearly impossible to get on ipo. I know of one person that was able to get 1,000 shares and that is it. Opened $10.25 and closed Friday at $12.49 for a massive 56% gain from pricing. China Medical equipment distributor. Is it really this good? No, not at all. This was a case of a very small float controlled by the underwriter in a deal designed to make the underwriter and clients a quick buck. Not a bad company, I liked this one a bit at $8 actually although there was not chance to get it there. This is one of those a year from now will most likely be back solidly into single digits and we will take a look at it at that point.

GGS - Global Geophyscial: Priced 7.5 million shares at $12. Closed Friday at $12. Priced well below range, probably found a level it can sustain here at $12. Seismic operations for the oil and gas industry. Very high capital intensive business has meant GGS has been able to put little on the bottom line. Had a massive one off deal in 2009, meaning 2010 will see a decline in revenues. There is value in here somewhere, but not interested currently.

MITL - Mitel Networks: Priced 10.5 million shares at $14. Closed Friday at $12.07 a 14% drop from pricing. Original range here was $18-$20, this was mispriced the whole way. IP based communications for small and medium business. Nothing at all here to be interested in, I panned this deal pretty vigorously at original $18-$20 range and it could even hold a slashed $14 pricing. Not a bad company, in a business with hefty competition and no real technology advantage. There would be value here $10 or below longer term, but currently no interest here.

SPSC - SPS Commerce: Priced 4.1 million shares at $12. Closed Friday at $13.91, a 16% gain. Micro cap on demand supply chain management software company. Nice little micro-cap in a spot(retail) that has been working in the market. Looks pretty fully valued here, would be interested on a pull back to pricing levels.

Pre-ipo I recommended in range DVOX and DHRM, with a 'neutral' on SPSC and a 'pass' on all the others. At current prices, DVOX is the one that appears to look most attractive going out the next year or so. I would look at SPSC and DHRM on a bit of a pullback. Yes a very busy week in ipoland, unfortunately most of the deals were just not that enticing.

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