

Did Zipcar Get Swindled on Its Massive IPO? - pkarbe
http://www.theatlanticwire.com/business/2011/04/did-zipcar-get-swindled-on-its-massive-ipo/36681/

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tomkarlo
It's important to remember they only sold about 10% of the company, not the
whole company, with the IPO. So most of that 50% gain also accrued to equity
still held by the holders prior to the IPO. So yeah, maybe they could have
priced 30% higher and pulled in an extra 5M in cash, but it would have also
meant more risk that they sully the 90% they still hold with a bad first-day
performance in the market.

I doubt they're crying in their milk tonight at Zipcar headquarters.

~~~
wmf
Auction IPOs are supposed to fix this problem, although I suppose clueless
buyer's remorse could lead to a first-day drop in such a case.

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tomkarlo
It's very hard to innovate in IPOs, probably partially because these first day
gains don't tend to bother issuers. Bankers would rather do things the
traditional way (and make institutional buyers happy with big first day gains)
and issuers tend to be relatively conservative about risking their only IPO on
a less-proven method

Look at it this way: if you're the CEO, you're not going to get fired because
of a 50% first-day gain. But if you botch things because you wanted to do a
non-traditional IPO, you may be.

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joncooper
I've worked both on the buy and sell side of the new issue trade. On the buy
side, as a proprietary trader, who had the option to buy the new issue (or
not). On the sell side, pricing and structuring deals with the equity capital
markets team, and placing them into the market. (This means selling them to
institutional clients.)

It's not surprising to me that this stock exhibited really high volatility on
day one. It's not easy to value this particular block of equity. It could
easily have traded down 50% if the pricing was overly aggressive.

Here's why:

\- Not profitable.

\- No easy comparables to help you know what metrics the market is going to
care about, or what multiple it will apply.

\- Sub-majority block of equity being sold means public shareholders won't
have control as a group.

\- Large overhang in the form of the significant amount of shares that aren't
being sold in the IPO, but will eventually need to get sold.

Typically an IPO would be shopped around the street, meaning that multiple
banks would have the opportunity to handle the sale.

If it's a fully underwritten deal, one parameter that gets negotiated is the
underwriting price: bank X will guarantee that you sell the stock for no less
than $15; bank Y will guarantee that you sell it for no less than $18. (Note:
they take a % off the top. Plus commission when they sell it to institutions.)

In a market this starved for IPOs, I'd guess this was an underwritten deal,
which means that the other banks probably wanted to place it at an even lower
price.

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geuis
Doesn't anyone have a problem with a company going public that _has never
turned a profit_?

I live in San Francisco and have been using Zipcar for years. They're a
wonderful company, with convenient car locations all over the city, excellent
customer service, and a very forgiving insurance policy (I was in an accident
a couple years ago that totaled their car. I just had to pay $500). So I
REALLY want Zipcar to stay in business.

But this just really is beginning to remind me of the crazy shit that was
going on 11-15 years ago. Companies back in the day that probably could have
built interesting long term businesses imploded when they went IPO and built
up massive amounts of capital they didn't need.

Please, someone tell me I'm missing something.

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jkmcf
On Marketplace this morning someone stated they are profitable where they
operate (DC, NYC, and SF?) but have been spending money to grow.

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geuis
Ok, now that does indeed make sense if true. Thanks.

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tocomment
Is there an easy way to stay abreast of upcoming ipos? I'm kicking myself for
missing this one.

~~~
bentlegen
As I understand it, the initial sales were first to institutional investors.
By the time you or I had a chance to purchase any, it was already at $30/share
(it's at $28/share now).

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HardyLeung
Funny it doesn't seem that long ago (okay, ten years ago) Henry Blodget was on
the other side of the fence.

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fleitz
No, the CEO made a bad deal with banks and is now using PR to shift the blame
from himself to his bankers.

If everyone intrinsically knew that ZipCar was worth $30 then why did he sign
a contract with the banks that allowed them to sell it for $18? Banks can't
just a your company public on their own, they need the consent of the CEO
and/or the board, when you sign this contract it outlines how the bank will
take your company public.

If he didn't like that option he could always buy a shell listed on the
exchange and do a reverse-merger. There are plenty of ways to take a company
public and very few of them involve trusting GS to sell your company at
whatever price they determine. If as CEO he allowed his company to be swindled
out of $50 million he should resign in disgrace. He's so ingrained in the
sausage making process he himself has been banned from trading.

As an aside after how badly GS and JPM fucked over the entire world it should
give one pause as to whether you'd sign a contract with any entity who had
demonstrated such moral hazard. They're called banksters for a reason.

Also, if you take IPO stock there is a gentleman's agreement that you won't
sell it for 90 days, so it remains to be seen how well these investors
actually did.

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georgieporgie
How do you differentiate between undervaluation and over-exuberant, illogical
investors? Neither is a good situation.

