In trailing 12-month rankings, five firms alternatively took the top spot for 1997 in the aftermarket performance of initial public offerings.
But the king of the hill was Baltimore-based BT Alex. Brown, which planted its banner at the top the last four months of the year, posting a 42.41 percent average annual return as of Dec. 31.
The other sterling contenders, with the number of months each finished first inside brackets, were powerhouse Morgan Stanley Dean Witter (4), New York's CIBC Oppenheimer (2), Arlington Va.-based Friedman, Billings, Ramsey & Co. (1) and New York's Bear Stearns (1).
The rankings were conducted by The IPO Aftermarket, a sister publication of Traders Magazine.
Indomitable
Despite BT Alex. Brown's indomitable position as one of Wall Street's leading underwriters of new equity offerings, the firm's deals were still among the most affordable, according to data provided by Securities Data Co.
After pricing an average 2.2 percent above the mid-point of their filing range, the firm's deals closed 16.4 percent, 18.4 percent and 15.9 percent above offering at the close of first-day, one-week and four-week trading, respectively.
For institutions, and for individual investors often excluded from a deal's initial allocation, that means just one thing more bang for the long-term buck.
For purposes of comparison, the 42 IPOs headed by Morgan Stanley-led syndicates, which priced an average of 11.4 percent above the mid-point of their filing ranges, gained 26.2 percent in first-day trading. But they closed the year an average of just 33.3 percent above offering.
"Aftermarket performance is extremely important," noted Michael Ott, managing director of equity syndication at BT Alex. Brown. "You want to show investors and prospective companies that you not only can successfully underwrite an offering, but also build long-term shareholder value."
Investment in all of the firm's 23 lead-managed offerings would have yielded an average gain of 42.41 percent above offering, supplanting Morgan Stanley, the 1996 champion and four-time leader in The IPO Aftermarket's monthly rankings in 1997.
Diversification
The top five performing IPOs in the BT Alex. Brown stable in 1997 would suggest a heavy slant toward technology outfits. Still, diversification may be at the root of its underwriting success in today's sometimes unpredictable broader markets.
BT Alex. Brown's top five IPOs were Daou Systems (Nasdaq:DAOU), a third-party manager of computer networks, whose stock closed the year at $31.25, or 247.2 percent above its February offering at $9; Radiant Systems (Nasdaq:RADS), a provider of enterprise-wide technology solutions, closed at $28.50, or 200 percent above the $9.50 offering; AHL Services (Nasdaq: AHLS), a staffing and management outsource company, closed at $24.63, or 146.3 percent above the $10 offering; Galileo Technology (Nasdaq: GALTF), an Israeli-based developer of semiconductors, closed at $28.88, or 68.9 percent above the $17 offering; and Yurie Systems (Nasdaq: YURI), a developer of asynchronous transfer-mode products, closed at $20.19, or 68.23 percent above the $12 offering.
Overall, BT Alex. Brown underwrote IPOs from six industry sectors, with the number of IPOs included inside brackets: technology (6), healthcare (3), basic industries (4), consumer (6), real estate (1) and transportation (3). Ott noted that the Sept. 1, 1997 merger of New York-based Bankers Trust and Alex. Brown added three additional sectors to the combined entities' fold: basic industries, energy/power and financial sponsors.
Meanwhile, the aftermarket returns of all underwriters across almost every industry group collapsed amid a fourth-quarter flight to quality. From an average return of 41.1 percent for all IPOs at the end of the third quarter, the high-water mark for the year, trailing 12-month issuance (excluding unit offerings), fell 8.1 percent to 583 deals, while returns on those offerings plummeted to 21.9 percent by year's end.
Gains Pared
Leading the list of underwriters that saw their aftermarket gains pared were San Francisco-based Nationsbanc Montgomery Securities, whose 12-month returns fell to 23.7 percent as of Dec. 31, from 68.5 percent at the end of September; New York-based Prudential Securities, where returns fell to 17.1 percent from 57.1 percent; and BancAmerica Robertson Stephens in San Francisco, whose 18 lead-managed efforts saw aftermarket gains of 13.7 percent, down from 52.8 percent.
"If you look at pricings in December in the new-issue marketplace, it seems pretty rough," Ott said. "But we believe that a lot of that was seasonal and related to a high level of supply in the marketplace, making it a buyer's market."
Attrition and a strong level of issuance last November (86 companies raising $8.18 billion, the heaviest monthly volume of IPOs in the market's history) has largely alleviated the market's glut. The backlog of IPOs and follow-on offerings in registrations peaked at $27 billion as of the week ending Oct. 31. At a current level of about $14 billion, the supply and demand outlook is much more evenly balanced, Ott said.
Stephen Lacey is associate editor of The IPO Aftermarket, a sister publication of Traders Magazine.
Aftermaraket Manager Rankings
Avg. % Chg. Avg. % Chg.
# of Filing IPO to
Book Issues Midpoint 1st-Day
Manager Priced To IPO Close
BT Alex. Brown 23 2.20 16.39
Goldman, Sachs 39 8.88 18.32
Hambrecht & Quist 16 -7.13 18.35
Morgan Stanley Dean Witter 42 11.36 26.23
Bear Stearns 10 -6.90 8.02
Merrill Lynch 38 11.93 12.87
DLJ 24 -2.84 10.34
CS First Boston 19 17.68 8.75
NationsBanc Montgomery
Securities 32 -2.4 7.4
All IPOs* 583 -0.76 13.64
Friedman, Billings,
Ramsey & Co. 11 -6.07 8.30
Prudential 12 -7.89 5.89
BancAmerica Robertson
Stephens 18 7.79 14.11
Salomon Smith Barney 31 0.26 13.76
Lehman Brothers 22 -3.96 6.59
cont'd
Aftermaraket Manager Rankings
Avg. % Chg. Avg. % Chg. Avg. % Chg.
IPO to IPO to IPO to
Close After Close After Close on
1 Week 4 Weeks 12/31/97
18.37 15.97 42.41
16.91 21.64 36.17
12.81 14.41 35.17
23.29 24.93 33.25
8.38 15.72 31.1
9.17 8.52 30.10
7.75 8.26 28.98
7.15 5.37 25.07
20.83 19.26 23.7
13.39 14.05 21.96
8.99 7.55 19.63
8.82 12.77 17.10
14.09 15.27 13.73
14.40 12.53 9.08
4.13 6.28 3.71
Source: Securities Data Co.
*Aftermarket data do not include unit deals
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