The IPO marketplace blows in to locale this week similar to a three-ring circus. The monthly calendar has 4 deals seeking to elevate over $1 billion – yes, a billion dollars – and the superstar is the ample hyped Groupon ( GRPN ) IPO.
Everyone has an viewpoint on this firm and investment recommendation on its stock. The financial media is having a margin day stating these opinions/recommendations – for whatever they are worth. But there is a organisation of experts out there not nonetheless listened from – Groupon’s investment bankers. They are muzzled by the “quiet period.”
The Securities Act of 1933 prohibits those entangled in the underwriting and placement of bonds in registration from compelling the company. The statute is an tusk of the years only before the 1929 batch marketplace collision when pump-and-dump schemes were commonplace.
Now this is where it gets tricky. The still time is a 40-day watchful time after an IPO is priced. This relates to the issuer (the firm – Groupon) and its handling underwriters, but it melts down to a 28-day watchful time for any of its other underwriters.
Groupon skeleton to offer 30 million shares at $16 to $18 any to elevate $510 million. The treat is approaching to be labelled on Thursday evening, Nov. 3, to traffic on Friday sunrise on the NASDAQ Global Select Market beneath the draft pitch “GRPN.”
Money, Oil and Fertilizer
In the Broadway low-pitched “Hello, Dolly!” a of the many unforgettable lines from the widow Dolly Levi – mainly if you were fortunate sufficient to see Carol Channing in the purpose – goes similar to this: “Money is, forgive the expression, similar to manure. It doesn’t do any great unless it’s expansion around, enlivening young things to grow.”
Dolly, of course, was on to something. Her thought has at least a mystic couple to the attention sectors – money, oil and manure – represented by the 3 other companies on the IPO monthly calendar this week:
Selway Capital Acquisition is a “blank check” gift that is being carried over from final week. The firm skeleton to offer 2.75 million units at $10 any to elevate $27.5 million. The lead managers are Aegis Capital and Chardan Capital Markets.
Enduro Royalty Trust ( NDRO ) , formed in Austin, Texas, is a certitude that was not long ago formed to own kingship interests in oil and gas prolongation properties in Texas, Louisiana and New Mexico. The firm skeleton to offer 13.2 million units of profitable fascination at $23 to $25 any to elevate $316.8 million. The IPO is approaching to be labelled on Wednesday evening, Nov. 2, and to traffic on Thursday sunrise on the New York Stock Exchange beneath the draft pitch “NDRO.” Joint-lead managers are: Barclays Capital, Citigroup, Goldman Sachs, RBC Capital Markets and Wells Fargo Securities.
Rentech Nitrogen Partners, L.P. ( RNF ), formed in Los Angeles, is a not long ago formed paltry partnership to own, run and blossom a nitrogen manure business. The firm skeleton to offer 15 million shares at $19 to $21 any to elevate about $300 million. The IPO is approaching to be labelled on Thursday evening, Nov. 3, and to traffic on Friday sunrise on the New York Stock Exchange beneath the draft pitch “RNF.” Joint-lead managers are: Morgan Stanley and Credit Suisse.
Out-running the Bear
In summary, there are 4 IPOs on the monthly calendar awaiting to elevate $1.15 billion.
With over $1 billion on this week’s calendar, that raises the question: “Is the IPO marketplace back?”
The answer: Only time will tell. Nevertheless, there are a few clues. Consider the following:
Historically, the IPO marketplace follows the underlying batch market. It is not a leader. You can look at this year as an example.
The U.S. batch marketplace strike its high is to year at the finish of April. The IPO prolongation line followed and carried over in to May. During those 5 months, the monthly calendar constructed 75 IPOs, according to the U.S. Securities and Exchange Commission filings. Then the batch marketplace took a swan dive to its October lows and the IPO marketplace dusty up. No IPOs were labelled in September.
Looking at the stream batch market, it’s value noting: Some gurus have been priesthood that stocks’ new liberation is nothing more than a bear marketplace rally.
The U.S. batch marketplace never slipped in to bear marketplace domain – it came close, but no cigar.
The clarification of a bear marketplace is a 20 percent tumble from its new high. The Dow Jones Industrial Average, deliberate from its shutting high to its shutting low, mislaid 16.8 percent. As of Friday’s close, Oct. 28, the Dow has recovered 14.8 percent from its low. The SP 500 mislaid 19.4 percent from its 2011 shutting high to its shutting low is to year, and it has recovered 16.9 percent. The Nasdaq Composite Index mislaid 18.7 percent from the year’s shutting high to its shutting low and it has recovered 17.2 percent.
No bear marketplace in those numbers.
Mark Twain once said, “If you don’t read the newspaper, you’re uninformed. If you read the newspaper, you’re misinformed.”
If Mark Twain were subsequent to today’s financial news, he would may say “watch TV” instead of “read the newspaper.”
Stay tuned.
Disclosure: Neither the writer nor any person else on the IPOScoop.com staff has a location in any stocks mentioned, nor do they traffic or deposit in IPOs. The writer and IPOScoop.com staff do not situation advice, recommendations or opinions.
Disclosure: we have no positions in any stocks mentioned, and no skeleton to beginner any positions inside of the next 72 hours.
Turnover turmoil: Know the signs of financial distress
Weak financial performance can cause borrowers to default on loans. So, it's important for lenders to recognize the early warning signs that a company is underperforming. Often these are nonfinancial cues that raise a red flag before problems show up on the financial statements.
Employees or executives jump ship
Employee turnover — at all levels — often precedes weak financial results. One obvious reason is layoffs: Companies that can't meet payroll may need to shed costs and dole out pink slips.
Another reason is that company insiders are often the first to know when trouble is brewing. For example, if the plant manager's innovative ideas are frequently denied due to lack of funds or if employees hear shareholders bickering over the company's strategic direction, they may decide to seek greener pastures.
The reverse happens, too. Sometimes charismatic "key" people leave the company, which, in turn, causes sales or productivity to nosedive. Given time and sufficient effort, most established companies can recover from the loss of a key person.
Employee turnover can also be a vicious cycle. Top performers in an organization may respond to perceived financial problems by moving to healthier competitors. That leaves behind the weaker performers, who must train new hires on the company's operations. Finding and training new workers can be time consuming and costly, compounding the borrower's financial distress.
If you notice that a borrower's management team is in flux or the owner starts complaining about staffing issues, step up due diligence. Also be on the lookout for key people who are dissatisfied, in poor health or nearing retirement.
Accounting changes hands
Likewise, accounting firm turnover can signal problems. Before signing an annual engagement letter, your borrower's accountant considers potential conflicts of interest and other risk factors. If the accountant suspects aggressive accounting tactics or going concern issues, he or she has an ethical obligation to issue a qualified audit opinion or to terminate the relationship.
Be skeptical any time a borrower switches to a new accounting firm, especially if the previous accountant started work and then unexpectedly pulled off the engagement. Sometimes, a borrower switches accounting firms to save professional fees or to obtain a fresh perspective. But occasionally it foreshadows negative financial results.
Receivables and inventory issues arise
When accounts receivable turnover slows dramatically, it could signal weakened collection efforts, stale accounts or even fraud. For example, a borrower who's desperate to boost sales might solicit business with customers that have poor credit. Or one of a borrower's major customers might be underperforming and it's trickling down the supply chain.
To compute the average collections period, divide the average accounts receivable balance by the company's annual sales, and then multiply by 365 days. If this metric is getting higher — say, 60 days this year compared to 50 days last year — it warrants a discussion with your borrower.
Likewise, beware of deteriorating inventory turnover. Similar to receivables, a buildup of inventory on a borrower's balance sheet could signal inefficient asset management. Certain product lines may be obsolete and require inventory write-offs. Or a new plant manager might overestimate the amount of buffer stock that's needed in the warehouse. It might even forewarn of fraud or financial misstatement. Whatever the cause, always ask questions when days in inventory increases or when inventory as a percentage of total assets starts to rise.
Read the writing on the wall
Lenders often feel like they're the last to know about a borrower's financial distress. While you can't automatically assume that a borrower with one (or more) of these "turnover" issues is on the verge of default, it should raise a flag that stronger due diligence is needed.
Weak results warrant extra attention
When a borrower's financial performance falls short of expectations, it's smart for lenders to conduct additional due diligence to better understand the source of the problem and then monitor interim results. If the company remedies the situation or there's a simple explanation, there may be no reason to panic. But if the borrower can't get the situation under control and is on the verge of violating a loan covenant, you may need to call the loan to protect your portfolio from default.
But how can lenders gauge which borrowers are salvageable? Many lenders request that borrowers hire a CPA firm to perform an "agreed upon procedures" engagement that targets the questionable aspects of the financial statements.
These engagements use similar procedures to an audit, but on a more limited scale. Before work begins, the CPA meets with the client (or the bank) to define the scope of the engagement and select the specific procedures to be performed. For example, you might ask an accountant to independently count a company's inventory and reconcile that count to the borrower's financial statements.
After the agreed-upon procedures have been performed, the CPA will present his or her findings to your bank. Then, it's your responsibility to decide whether to stay the course or call the loan based on the added level of review.
Employees or executives jump ship
Employee turnover — at all levels — often precedes weak financial results. One obvious reason is layoffs: Companies that can't meet payroll may need to shed costs and dole out pink slips.
Another reason is that company insiders are often the first to know when trouble is brewing. For example, if the plant manager's innovative ideas are frequently denied due to lack of funds or if employees hear shareholders bickering over the company's strategic direction, they may decide to seek greener pastures.
The reverse happens, too. Sometimes charismatic "key" people leave the company, which, in turn, causes sales or productivity to nosedive. Given time and sufficient effort, most established companies can recover from the loss of a key person.
Employee turnover can also be a vicious cycle. Top performers in an organization may respond to perceived financial problems by moving to healthier competitors. That leaves behind the weaker performers, who must train new hires on the company's operations. Finding and training new workers can be time consuming and costly, compounding the borrower's financial distress.
If you notice that a borrower's management team is in flux or the owner starts complaining about staffing issues, step up due diligence. Also be on the lookout for key people who are dissatisfied, in poor health or nearing retirement.
Accounting changes hands
Likewise, accounting firm turnover can signal problems. Before signing an annual engagement letter, your borrower's accountant considers potential conflicts of interest and other risk factors. If the accountant suspects aggressive accounting tactics or going concern issues, he or she has an ethical obligation to issue a qualified audit opinion or to terminate the relationship.
Be skeptical any time a borrower switches to a new accounting firm, especially if the previous accountant started work and then unexpectedly pulled off the engagement. Sometimes, a borrower switches accounting firms to save professional fees or to obtain a fresh perspective. But occasionally it foreshadows negative financial results.
Receivables and inventory issues arise
When accounts receivable turnover slows dramatically, it could signal weakened collection efforts, stale accounts or even fraud. For example, a borrower who's desperate to boost sales might solicit business with customers that have poor credit. Or one of a borrower's major customers might be underperforming and it's trickling down the supply chain.
To compute the average collections period, divide the average accounts receivable balance by the company's annual sales, and then multiply by 365 days. If this metric is getting higher — say, 60 days this year compared to 50 days last year — it warrants a discussion with your borrower.
Likewise, beware of deteriorating inventory turnover. Similar to receivables, a buildup of inventory on a borrower's balance sheet could signal inefficient asset management. Certain product lines may be obsolete and require inventory write-offs. Or a new plant manager might overestimate the amount of buffer stock that's needed in the warehouse. It might even forewarn of fraud or financial misstatement. Whatever the cause, always ask questions when days in inventory increases or when inventory as a percentage of total assets starts to rise.
Read the writing on the wall
Lenders often feel like they're the last to know about a borrower's financial distress. While you can't automatically assume that a borrower with one (or more) of these "turnover" issues is on the verge of default, it should raise a flag that stronger due diligence is needed.
Weak results warrant extra attention
When a borrower's financial performance falls short of expectations, it's smart for lenders to conduct additional due diligence to better understand the source of the problem and then monitor interim results. If the company remedies the situation or there's a simple explanation, there may be no reason to panic. But if the borrower can't get the situation under control and is on the verge of violating a loan covenant, you may need to call the loan to protect your portfolio from default.
But how can lenders gauge which borrowers are salvageable? Many lenders request that borrowers hire a CPA firm to perform an "agreed upon procedures" engagement that targets the questionable aspects of the financial statements.
These engagements use similar procedures to an audit, but on a more limited scale. Before work begins, the CPA meets with the client (or the bank) to define the scope of the engagement and select the specific procedures to be performed. For example, you might ask an accountant to independently count a company's inventory and reconcile that count to the borrower's financial statements.
After the agreed-upon procedures have been performed, the CPA will present his or her findings to your bank. Then, it's your responsibility to decide whether to stay the course or call the loan based on the added level of review.
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