LuLu IPO took guts part 2

As David Letterman would say, “letters, we get letters”. And the great thing about this particular blog site is we usually get thoughtful comments on our site, although most come directly via email and impromptu yaks at Starbucks. (BTW, have you ever looked at the comment section below any story in the online version of the DTM?)

One particularly insightful reader is an experienced member of the financial community, and he/she was surprised with my glass half full take on the pulled initial public offering of LuLu (see prior post “LuLu IPO took guts” April 16-10).

As with many arguments, and certainly when it comes to this space, there is another side to the LuLu story. If you’re a Canadian tech company Chief Executive Officer with an IPO about to turn onto the runway, looking to take off, you might be a bit cross that the LuLu IPO tested the market before you got the chance. Since debate is the foundation of the blogosphere, here’s a short excerpt of the volley I received:

I hear you and respect the view but ipos like those shut down markets for solid companies and make much needed access to markets a challenge in the best of times for such companies. [The future IPO of company name deleted] may end up being collateral damage, for example.

Since we were the first to sound the horn acknowledging the opening of the Canadian tech IPO market (see prior posts “CDN tech IPO market stirring to life” August 20-09 and “Media Hat Tip #52” August 22-09), and have a couple of portfolio companies as candidates for this IPO class, you will appreciate that we’d be very much against any crosscurrent that would wash away the momentum that was allegedly building.

However, times are not good out there in deal land. Look at the post-IPO performance of Biox, (BX:TSX), a Wellington Financial Fund III portfolio co: the stock is trading practically at cash value just a few weeks after its IPO, despite the obvious value of their world leading biodiesel technology and their busy EBITDA-positive 67 million litre plant.

The question remains: is it the market or the deal?

During the month of March, when Wall Street shuts for the better part of two weeks, 13 IPOs were priced — and all but three of them are up. Of the three March IPOs that have traded down, the worst loss among the group is 2%. A great outing.

There have been three IPOs priced in the U.S. so far this month, and all have traded down. Of the April contingent, two of the three IPOs were quickly off more than 8%. Something is afoot.

Although Canada’s tech IPO market momentum doesn’t scientifically follow the U.S. lead, there isn’t a buysider who hasn’t figured out that April isn’t the month to strap on something they can’t get their arms around. And domestic tech IPOs have always been a certain flavour, for a certain buyer, at a certain point in time in the decade.

MRM
(our Fund III owns shares and warrants in Biox)