Magazine

The IPO Class of 2006


Initial public offerings due in 2006 are shaping up much as they have the past couple of years -- a steady stream, with a few biggies in the pipeline. Yet there's a difference: Soon-to-be-public companies now are freer to talk about themselves before a much wider audience. For the first time in decades, this includes you.

On Dec. 1, the Securities & Exchange Commission put into effect a new policy on pre-deal publicity, which was restricted under the Securities Act of 1933. First proposed in 1998, the reforms allow companies preparing to sell securities to speak openly about their businesses and even to broadcast via the Internet the "road show" presentations that in the past have been restricted to institutional investors. In mid-December, I found a dozen or so IPO hopefuls making their pitch at RetailRoadshow.com. This "should have been done years ago," says Linda Killian, principal at Renaissance Capital, the Greenwich (Conn.) firm that runs IPO Plus Fund ().

A REFRESHING TRANSPARENCY, YES. Just don't look for every company going public to join in. I contacted several with 2006 IPO plans (table). One told me privately that it had discussed the possibility of podcasting its road show. Yet at spirits maker Castle Brands (), President Keith Bellinger said: "The advice from our attorneys is to say nothing." Michael Fox, whose Westport (Conn.) firm, Integrated Corporate Relations, often consults with companies going public, said the prevailing attitude is prudence: "When it comes specifically to talking about the business, even if it's in the prospectus, there will continue to be some reticence" until enforcement under the new rules is tested by time. That leaves investors still straining their eyes reading acres of fine print. Among upcoming deals, here are four that caught my attention:

-- Crocs (). Light, colorful, rubberlike clogs and sandals are this Niwot (Colo.) company's thing. And it's a fast-growing thing. Sales in this year's first half neared $37 million, up from $13.5 million for all of 2004. The first half also brought $6 million in profit, reversing a $1.6 million 2004 loss. Crocs shoes are hot, so this issue figures to run fast -- until the trend cools.

-- Morgans Hotel Group (). Has it been 21 years already since the company's first boutique hotel, Morgans, opened in midtown Manhattan? Now Morgans has eight more distinctive spots -- Miami's Delano and the Mondrian in Los Angeles among them -- and a total of 2,500 rooms. Revenues keep climbing, but look out for Morgans' balance sheet: 88% of its $660 million in debt is floating rate. Higher interest rates will hurt.

-- Morton's Restaurant Group (). First Smith & Wollensky's () parent went public. Then Ruth's Chris Steak House. Now, here comes Morton's, with 69 restaurants in 60 cities. Private equity firm Castle Harlan took Morton's private in 2002, valuing it at $186 million, or 0.8 times revenue and 10 times EBITDA (earnings before interest, taxes, depreciation and amortization). An IPO price has not yet been estimated. At 2002 multiples, Morton's enterprise value would run $235 million to $275 million; Castle Harlan no doubt expects more.

-- SAIC. This is set to be the big sleeper of 2006. With $7.5 billion in revenue and $550 million in EBITDA, the San Diego parent of Science Applications International is one of Uncle Sam's top information-technology vendors, serving the Pentagon and, increasingly, homeland-security clients. Formed in 1969, the company is owned by employees. After the IPO, they will keep control, via supervoting stock.

SAIC won't be Webcasting its road show, Crocs might, and Morton's CEO-designate, Thomas Baldwin, told me it's being mulled. Morgans did not respond to my inquiry. Whether or not more companies take advantage of the new, looser rules on pre-IPO publicity, don't toss your reading glasses.

By Robert Barker


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