On this day in economic and business history...
The 1990s were years of unprecedented IPO activity for American markets. For the first time in their history, exchanges (particularly the Nasdaq OMX) experienced a wave of companies that went public with brief and often dubious corporate histories, only to enjoy first-day gains of 100% or more. The phenomenon peaked in 1999, when 117 different IPOs doubled on their first day of trading -- but the seeds of this bubble were planted two decades earlier, on Oct. 14, 1980. That day, the first modern "tech" IPO -- and the first day-one IPO double in modern market history -- hit the market with the ticker symbol "GENE," for Genentech.
Genentech, founded four years earlier as the world's first biotechnology company, already enjoyed a reputation as the minuscule industry's leading light thanks to promising trials of genetically engineered drugs. Its first successful development, a biosynthetic insulin, had been licensed to Eli Lilly (LLY 1.19%) and announced two years before the IPO, although it would spend two more years undergoing FDA trials before receiving approval as the first "biotech" drug in 1982. This was enough to propel shares, initially priced at $35 apiece, to a $71.25 close for a first-day return of 104%.
The week after Genentech's IPO saw a flood of financial columns tripping over themselves to explain the sheer mania of the company's first trading day. The Los Angeles Times called it "a frenzy the like of which hasn't been seen since the go-go days of the late 1960s," and a day later wrote of "instant [Genentech] millionaire" Richard Scheller, a Caltech research fellow who had been fortunate enough to work at the start-up in its first year of operation, thus gaining access to cheaply priced shares -- he had purchased 15,000 shares for just $300. The Boston Globe headlined the pop as "a 20-year record" and quoted Lee H. Lovejoy, executive at lead underwriter Blyth Eastman Paine Webber, as saying, "We've never had a busier day. ... We tried to maintain an orderly market [but] had to redirect half our over-the-counter trading staff to just handle Genentech." The Christian Science Monitor quoted another Paine Webber underwriter who saw the price of a stock offered at $35 per share open its trading life at $80:
When the price opened here it was embarrassing. But there is no way that we can price it higher. ... We really don't like to do this because it results in more unhappy customers.
Many other Wall Street insiders appeared similarly gobsmacked by the surge.
Roughly half of the 1.1 million shares placed on the market traded that day, and frenzied action pushed their price to a peak of $86 before lunchtime. The unproven company, which had generated only $3.4 million in sales and $80,000 in operating earnings the prior year, ended the day with a market cap of $532 million and an estimated P/E ratio of 7,900. The valuation surprised even Kleiner Perkins co-founder Thomas Perkins, who enjoyed his first great IPO at the head of what later became Silicon Valley's premier venture-capital firm (now Kleiner Perkins Caulfield & Byers) -- an initial $200,000 investment had blossomed into $67 million by the end of trading on Oct. 14, producing a four-year return of more than 33,000%.
No IPOs would double on their first day for another three years. Three IPOs achieved the feat in 1983, and another three managed it in 1986, but the IPO boom didn't begin in earnest until 1995. That year, 11 IPOs were first-day doubles -- a record soon broken by 1998's 12 first-day doubles and ultimately blown to smithereens by 1999's mad, mad market, which was the first (and thus far the only) year in which more than 100 companies doubled in their first day of trading.
Genentech eventually far exceeded the promise of its first day. Swiss drugmaker Roche (RHHBY 0.77%) acquired a 60% stake in the company a decade later for $2.1 billion, conferring on Genentech a market cap 560% larger than what it had sported after its IPO. By the time Roche finally bought the rest of Genentech for $46.8 billion in 2009 -- a price diminished by the bottoming-out of American stock markets just as the acquisition concluded -- its total market cap had grown to $100 billion. Those anxious first-day shareholders, who had held onto the stock they'd snapped up at 7,900 times earnings, had earned annualized returns of 19.8% per year for nearly three full decades.
Not a down day
The Dow Jones Industrial Average (^DJI 0.40%) didn't enjoy the full force of the 1990s IPO boom, but it nevertheless rose at a nearly unprecedented rate during the decade, setting a number of milestones along the way. One such milestone occurred on Oct. 14, 1996, when the index crested 6,000 points for the first time in its history. Its final close, at exactly 6,010 points, was reached a mere 11 months after the Dow broke through the 5,000-point barrier, representing a double roughly five and a half years in the making.
The Wall Street Journal sounded its typically cautious tone over the 6-year-old bull market, noting that:
The higher the market rises, the more concerned some analysts become. Certainly few anticipate a quick run to 7,000, even if the storybook economic picture of benign inflation, falling interest rates and continued growth in corporate profits continues into 1997. Also waiting in the wings is uncertainty surrounding the outcome of the presidential and congressional elections.
The Dow's run to 7,000 turned out to be faster than the Journal anticipated, reached a mere four months later. The dot-com-fueled milestones kept coming until mid-1999, when the Dow broke above 11,000 points. All told, the 1990s set far more major index milestones (nine) than any other decade, from 3,000 points in 1991 all the way to 11,000 in 1999.
Everything tastes better when you make it at home
Millions of thirsty American beer-drinkers rejoiced on Oct. 14, 1978, when President Jimmy Carter signed H.R. 1337 into law. This little-known bill contained an important provision legalizing the home production of beer, correcting a decades-long oversight that had persisted since the repeal of Prohibition had left beer out of new statutes legalizing home winemaking -- a "clerical error," according to the American Homebrewers Association (AHA), with grave consequences for true brew fans. For the first time since the Great Depression, adventurous drinkers could experiment with beer recipes rather than wait to find a rare import to break the monotony of a market dominated by several megabrewers. Two months later, the AHA formed in Colorado, and within a year the organization held America's first (post-Prohibition) national home-brewing competition.
The market for craft brews, products that have largely been outgrowths of good home-brewing efforts, remained minimal for years. It was not until the mid-1980s that craft brew established a tentative foothold in the country with the opening of several brewpubs, the publication of the seminal how-to book The Complete Joy of Homebrewing -- and, of course, the founding of Boston Beer (SAM -1.42%), which home-brewed its first Samuel Adams Boston Lager in co-founder Jim Koch's kitchen in 1984.
Koch, continuing a multigenerational family tradition, soon became the face of the small brewer, and within five years Boston Beer sold the equivalent of nearly 21 million 12-ounce bottles annually. The company didn't enjoy a first-day double in its 1995 debut, but loyal Sam Adams drinkers nearly did. The company ran a unique pre-IPO offering scheme whereby six-pack purchasers could mail in coupons for a set of 33 shares worth $15 apiece -- a 25% discount over the eventual $20 offer price and good enough for a first-day gain of 87%. By this point Boston Beer was indisputably the leader of the craft-brew movement, with four times the sales volume of the second-place contender.
Today, home brewing and the craft beer industry continue to be the growth drivers of an industry that otherwise peaked years ago. The AHA counts more than 1 million American home-brewers and 1,500 home brew clubs. More than 2,300 craft breweries across the country produce 6.5% of the volume (an estimated 13.2 million barrels, or about 4.4 billion bottles of beer) and 10.2% of the sales value of the entire $99 billion domestic beer industry. Boston Beer has grown so large since its founding that the craft brewing industry's leading professional association was forced to change its bylaws to accommodate the rising kingpin. The limit to brew volume for craft status was tripled in 2011 from 2 million barrels to 6 million barrels per year, as Sam Adams brews flowed from taps in ever-greater volumes across the United States. Those loyal drinkers who drank up the opportunity for discounted pre-IPO Boston Beer shares had gained nearly 1,500% on the 35th anniversary of H.R. 1337's passage.
