Which Busted IPO Will Pop Next?

Shares of Skullcandy (SKUL) opened nearly 7% higher this morning after a Bloomberg article quoted analysts and fund managers who see the battered maker of in-ear headphones as a takeover candidate.

There's really nothing to see here. Skullcandy went public at $20 two summers ago, and it has gone on to shed nearly two-thirds of its value. No one is stepping up as a suitor. Skullcandy isn't openly exploring strategic alternatives. It's just a Bloomberg story asking money pros to dream out loud.

However, it's easy to see why Wall Street's turning over forgotten stones. Shares of Zipcar (ZIP.DL2) -- another company trading well below its 2011 IPO price tag -- put the pedal to the metal last week after receiving a buyout offer at a 49% premium to where it was trading.

If you're a company that has recently completed an IPO and you're trading below that initial price, don't be surprised if Bloomberg reporters begin asking analysts and money managers about you.

Fishing for the next broken IPO buyout
The argument in favor of Skullcandy receiving M&A interest here is that it's just too cheap. The company's been consistently profitable, and revenue is still growing.

Bloomberg points out that Skullcandy's trading at an EBITDA multiple of just four based on its enterprise value. That would be a value hunter's dinner bell -- if only Skullcandy was worth eating.

That's the problem. Skullcandy became popular in its early years by marketing edgy designs on decent quality audio gear to extreme-sports enthusiasts. It's a potent niche, but not one that translates well into making a mainstream push without being branded a sellout. Along the way, the market for earbuds and other listening devices has grown brutally competitive.

Nobody has to buy Skullcandy. Zipcar was the top dog in the disruptive car-sharing market. No one was even close. Skullcandy could close up shop tomorrow, and no one would notice.

However, since there are so many 2012 debutantes trading below their IPO prices, let's take a closer look at three that offer more feasible buyout scenarios than we find with Skullcandy.

Source: Hoover.

Broken is a temporary state
Facebook has bounced back in recent months, but it's still trading well below its original $104 billion valuation. Analysts are no longer worried about mobile monetization, and the world's leading social networking website keeps coming up with new ways to cash in on its growing audience. The one knock here is that there aren't too many companies that are big enough to potentially acquire Facebook.

You can count the tech giants in a single hand. However, any of them would love to have their grubby mitts on the company that knows the likes, dislikes, and friendships or more than a billion Web-savvy consumers.

Tilly's is a mall retailer at a time when larger chains are struggling for organic growth. Tilly's is a profitable chain of stores selling action sports apparel and accessories. Analysts see a profit of $0.91 a share in the fiscal year that ends later this month. They see continuing earnings growth on a 15% uptick in net sales for the year ahead. Some will argue that Tilly's is as nondescript as Skullcandy, but the appetite for many meandering retailing giants to deliver growth -- even if it's acquired -- is insatiable at this point.

Millennial Media is a major player in mobile display advertising. It's the top player that is operating system-agnostic, and that's why so many of the leading developers putting out apps for iOS and Android devices turn to Millennial to monetize their free downloads. Millennial Media's profitability has been spotty in the past, but it has posted back-to-back quarters of better-than-expected bottom-line results. Analysts see a healthy profit in 2013, accompanied by a robust 58% spike in revenue.

Slumping rookies can bounce back as sophomores
It's easy to forget about broken IPOs, but it could be financially lucrative to keep them in mind.

Many larger companies may have been envious of the prices at which some of these companies went public, but now they get the chance at the last laugh by buying them out for less -- and giving today's investors a reasonable buyout premium.

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