The High Price of Going Public

If you're an aspiring IPO, we have got a few pointers for you before you go for the tiara in Wall Street's beauty contest.

  • Take a good, long look in the mirror and ask yourself if you're pretty enough to go through with it.
  • Take a few inches off those heels, because you're going to have to sashay down the catwalk a lot smaller than you first imagined.
  • Pack a thick skin, because Mr. Market's cruel judges make Simon Cowell seem like Paula Abdul.

Late last year, contestant Intellon (Nasdaq: ITLN  ) , an integrated-circuits designer, had big dreams when it was initially seeking to price its shares between $9 and $11 a pop. It had to settle for a $6 price tag.

The same fate befell rival chip designer Entropic (Nasdaq: ENTR  ) . It, too, had to swallow its pride and accept a $6 IPO price after being originally projected to fetch $9 to $11 a share.

If you think sobering integrated circuit IPOs come in threes, Memsic (Nasdaq: MEMS  ) accepted a $10 IPO price, slightly off its original price range of $11 to $13 per share.

This isn't some contagious epidemic that has stricken only the freshly minted semiconductor stocks. Plenty of companies looking to go public in recent months have had to make a tough choice in light of investor apathy: Postpone the IPO, or take whatever the underwriter's best accounts are willing to pay.

ATM operator Cardtronics (Nasdaq: CATM  ) hit the market late last year, priced well below its $14 to $16 range, at $10 a pop. Managed health-care provider Triple-S Management (NYSE: GTS  ) and Chinese digital advertising specialist VisionChina (Nasdaq: VISN  ) also had to lower their original asking prices.

It's hard to walk in their shoes. Waiting for market sentiment to turn positive can be a dangerous game, especially when you need the money. Some companies will simply accept the lower price, but in turn only offer a fraction of the shares that were originally supposed to be sold. It means even less money coming in, but it opens the door for an eventual secondary offering in the future, when the shares are back in favor.

Is it embarrassing? It may be, but today's new companies can always turn to Google (Nasdaq: GOOG  ) for inspiration. The company went public in the summer of 2004, initially looking to price its shares between $105 and $135 apiece. When the buyers didn't see it that way, Google had to settle for $85. If you want to know how that story ends, just pull up a stock chart. If you want to know how these stories will end, you're going to have to leave it up to the respective companies to author their own market-worthy happy endings.

They can't all wear the tiara.

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Prashant Rathore updated this article, originally written by Rick Munarriz and published on December 14, 2007. Prashant does not have any financial interest in the companies mentioned above. The Fool has a disclosure policy.


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