This is a busy week for the IPO market in terms of numbers but the deals and presentations are not very sweet.
SciQuest did price and, as we noted in an earlier post, it’s a fairly interesting company with a slightly high proposed price range. The shares were priced at the low end ($9.50) and then traded up to our $13 IV on the debut but have since fallen back to $11.70. At these levels they are not compelling.
SouFun was the best deal on the calendar and it priced and traded up sharply. What’s not to like about a real estate portal in China? Our IV will be introduced with the next Candygram on Friday, October 1st.
Mostly Sour IPO Candy this week:
Dry Licorice: Rhino Resource Partners LP – Coal mining company. CEO David Zatezalo will put any non-mining types to sleep in the first 10 minutes. We expect this deal to be of interest to a narrow group of mining, energy and coal investors but of no interest to our growth-oriented audience. Hard, dry and black.
Week-old Sheet Cake: Elster Group – Energy and water meters. Elster is a big global player in the “smart meter” market and competes with Itron and Landis & Gyr. This is one of the worst presentations for the week. The CEO is named Simon Beresford-Wylie. Need we say more? He actually says: “We’ve been steady for 170 years.” “Elster is an industry leader. Now you’d expect me to say that but we really are!” “We invented the electric meter, we invented it!” Elster is a big, stable global company and the deal should certainly get done at a price. Unfortunately, their technology is lagging behind competition like Itron and they are getting very few “design wins” in the US. They crow about their outstanding board members coming from SAP and Dell. Hard to pick two worse companies to help project yours as innovative today. We’d avoid this one unless it is priced at a deep discount. If it trades up strongly from those levels it’s a classic profit taking opportunity. We’ll put the name in our smart grid group but don’t expect this one to get much attention. We’re waiting on others like Silver Spring Networks.
Red Bean Cake: ChinaCache – Content delivery network in China. We know everyone will call this the “Akamai of China” and that alone should make this a hot deal. Baidu has done extremely well with “Google of China” positioning. Red Bean cake may be an acquired taste but we like it. We will add an IV for this one and include it in the Candygram due out later this week.
Zot: Global Education & Technology Group – Educational and testing services in China. This could well be another hot China deal. As an aside we couldn’t help but notice that this roadshow is largely in Chinese but the company is focused on the testing market for English language skills. No doubt this is a big growth market in China and this may be a good company to play it. It will be in the ecosystem but not one we plan to do work on.
Graham Cracker: Campus Crest Communities – This is a REIT for high-end college campus housing. There is a clear trend here. We just toured the Northeastern campus in Boston and can say that student housing has sure changed! We don’t do REIT deals so will pass on this one. But it is a growth area and the company seems to have tapped into a real, if somewhat lamentable trend of spoiling college students with housing they won’t be able to afford once they graduate.
Ring Ding: China Ming Yang Wind Power – Terrible quality roadshow presentation that is painful to sit through. But still the company makes very large wind turbines and has an attractive market opportunity. It’s hard to know where they really stand in China because they keep emphasizing that they are the largest “non state-owned” wind turbine maker there. This is an industry in which the Chinese state has strong interests and will exercise control. Figuring the impact on a company like China Ming Yang is tricky. That said the company appears to have figured out how to use R&D and innovation to build better products. The company also has a large backlog of orders that cover the sales targets for 2010 and a major portion of 2011. We’re on the fence here and haven’t decided if we make this one of the companies we do more work on or not.
Butter Cookie: LINC Logistics – Third party logistics provider. Basically this company moves stuff around and manages some of the moving parts for large manufacturing firms, particularly automobile manufacturers. These are legitimate businesses but not interesting enough for us to follow. They do improve returns but they do it mostly the old fashioned way. Companies that do it with the web (like SPS Commerce or Open Table) are more in our sweet spot.
Gatorade Gum: KEYW Holding – Cyber-security. This is a strange one. The presentation is bizarre and the company name and symbol comes from the notion of Key West and Jimmy Buffett. Of course, this has nothing to do with what the company does but is an inside joke that they take the time to share with us. They are growing fast and are profitable. Since it’s security we will probably at least publish an IV later this week. However, investing in the company feels like playing a game when all the other players know more about the rules than you do. It tastes funny and it’s hard to know what it is. Do they even still make Gatorade gum?
All in all, a fairly uninspiring group. In the meantime, we are working on some that promise to be more exciting including Skype, InvenSense, DemandMedia, and Zipcar. The usual chatter on LinkedIn filing was also around this week. Based on how these deals do we may see a whole jar of sour names come to market.
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