The Year in IPOS

Old-time marketers hold that a sudden strong move in a stock is soon followed by another strong move. On balance, however, the dozen fast starters just described gainsay that assumption. Despite the steady advance in the secondary-stock market overall -- the NASDAQ Composite Index was up 57% for the year -- 8 of those early movers subsequently eased from their first-trade heights. Three actually ended the year even lower than their IPO prices. Only 4 of the top 12 kept climbing.

The number of companies simultaneously going public and earning a place on the Inc. 100 (see chart, No. 05921081, May 1992) was disproportionately plentiful in 1991 -- more than twice the norm. Oddly, of the 19 IPOs that demonstrated sufficient revenue growth to make the list, 9 are computer related. By contrast, there was no biotech company, fast fooder, retailer, or apparel manufacturer.

Apparently, brisk revenue growth counts for little when it comes to aftermarket IPO investment. Only 3 of the Inc. 100's IPOs are among the 38 IPOs whose stock doubled or more by December 31: Value Health, Quarterdeck Office Systems, and Mitek Surgical Products. Was it profitability that counted? Hardly. Whereas Quarterdeck's prospectus paints a rosy five-year history of uninterrupted earnings growth, Mitek's shows a dreary pattern of losses.

The average deal, whose average share cost $11.43, gained 30% over its offering price by December 31. Just 9 were reduced by more than half in the aftermarket. Valley Systems, an industrial-cleaning service with $14.9 million in revenues in 1990, enjoyed the year's largest increment, nearly quintupling its offering price. In second place, with a gain of 373%, was MedImmune, a developer, manufacturer, and marketer of vaccines. The perennially profitless corporation lost $4.1 million on 1990 sales of $3.3 million. Such is the magic of raising capital through a public offering: try getting a banker to lend you $23 million -- the sum MedImmune fetched in its IPO -- with a history of no earnings.

As always in young-company IPOs, it was buyer beware. Hardly had six-year-old Ropak Laboratories traded at more than double its offering price when it released first-quarter results. Unfortunately for its high-flying stock, those results showeda loss of $907,000 on revenues of $281,000. Ropak Labs' stock wilted. Was the loss sneaked in under cover of IPO by management or an underwriter in an attempt to mislead investors? Not atall. As the Securities and Exchange Commission requires, the offering prospectus had diligently disclosed -- to the few who bothered to read it -- all that was known about the company at the time, including the probability of the upcoming debit, due to a onetime write-off. Of course, the company probably could have taken the write-off prior to the offering. But then it might not have raised as much capital to absorb it.

Like the contents of a time capsule, a sampling of 1991 offerings vividly portray U.S. culture toward the century's end.

* Video Lottery Technologies, which manufactures video-game terminals that are installed in bars and then shares revenues with the government, raised $39.9 million. Advanced Promotion Technologies, which designs and markets video-screen advertising at supermarket-checkout counters, raised $18 million.

* Ezcorp, which operates pawn shops, raised $24.4 million. First Cash, which also operates pawn shops, raised $4.5million. The Money Store, which makes personal loans, raised $35.2 million. World Acceptance, which makes consumer loans, raised $21 million. Credit Depot, which extends high-risk loans, raised $3.9 million.

* Marvel Entertainment Group, North America's largest creator and publisher of comic books, featuring Captain America, among others, raised $69.3 million.

* Sports Heroes, Megacards, and Sports Media all exploit adulation oftop professional athletes, who, by the way, sign contracts worth more than any of those companies was able to raise -- $4.5 million, $4.1 million, and $3.8 million, respectively.

* Insurance Auto Auctions, which buys totaled cars from insurers and resells them, raised $22.9 million. Custom Chrome, which manufactures and distributes parts for Harley-Davidson motorcycles, raised $25 million.

* Koo Koo Roo, which franchises fast-food dining, raised $6.3 million. Sonic, which franchises really fast-food dining, raised $46.3 million. The aforementioned Checkers Drive-In Restaurants, which franchises fast-as-you-can-motor-through-them dining, raised $33.6 million.

* Restor Industries, which repairs pay telephones, raised $5.3 million.

Even a railroad, Wisconsin Central Transportation, managed to sell itself into the public market in 1991. The carrier proved that 1991's IPO window opened plenty wide for those prepared to chug on through. The many private companies wary of Wall Street's promise of easy money might do well to observe that the slightest amount of money raised by an operating company in a 1991 IPO was a hefty $2 million by Lancit Media Productions, a very small-cap producer of television projects. Lancit stock came out at $1.50 in June and ended the year at $4.00. In six months its owners had become 167% richer.

Still want to keep trying your banker?

This article is based in part on data supplied by IDD Information Services, in New York City.

1991's Most Active Managers
The role -- and income, at 10% or so of gross -- of investment banking was revivified in 1991. The 10 underwriters bringing the most IPO deals to market: