IPO Outlook With David Menlow, president of ipofinancial.com
Wednesday, May 24, 2006LINDA O`BRYON: MasterCard and Vonage are two of the most high profile IPOs in recent weeks, but they`re certainly not the only ones. Joining me now to discuss the IPO market is David Menlow, president of ipofinancial.com. David, thanks for joining us.
DAVID MENLOW, PRESIDENT, IPOFINANCIAL.COM: Great to be here Linda.
O`BRYON: Let`s begin with the MasterCard IPO. What do you expect for that issue?
MENLOW: Well certainly, of the two deals that we`re talking about here, MasterCard and most likely Vonage, MasterCard is the quality of the two deals. The problem that it`s facing in the marketplace is the media is basically sitting on the litigation potential that exists with the company and the fact that they could be on the hook for a couple of billion dollars if the decision is made against them.
O`BRYON: So there are some significant risks. Are those risks built into the price?
MENLOW: I would say yes. The company is coming at a cheap valuation relative to what it is actually worth, and we would say that this is a little bit of a carrot that`s being dangled in front of the investors to say, if there is a situation where there is litigation problems, it will probably happen later on and through appeals and what have you, it`ll take a couple of years until it resolves itself.
O`BRYON: So on balance then, you`re positive about MasterCard.
MENLOW: We love the way they execute business. This is an unbelievable brand recognition name. They just continue to almost print money. That`s how successful their business plan is. They hit the interest rate markets with all its volatility, almost like it`s smooth sailing.
O`BRYON: Well as we heard, by contrast, Vonage, the Internet phone provider, has been a disappointment so far, some analysts saying it could be the worst performing IPO of the year. What happened here?
MENLOW: Well, this was clearly a company that should not have come public in the eyes of the investing world. The institutions that probably were interested in it faded at the last minute. At a $17 price, which was the mid-range actually faded almost instantly and that`s an indication that people see that there are real problems with the company, competition and the technology.
O`BRYON: We`ve seen some other IPOs that have done well in the market. One of them is the spin-off Chipotle, Chipotle I should say, from McDonald`s. Now what fueled that success? We see the chart here from its IPO price to where it is now (INAUDIBLE).
MENLOW: That`s a singular success story. It is the largest opening premium that the IPO market has seen for 2006 opening up I believe 104 1/2 percent higher. But this is about being nursed along with the McDonald`s name, with all the McDonalds business acumen that they bring to the equation and the idea is really just in the early expansion stages. So it has been received well and should continue to do well in the aftermarket.
O`BRYON: So it sounds like that brand name recognition has really helped. What about Tim Horton`s, known for coffee and baked goods, headquartered in Ontario, spun off from Wendy`s and as we can see, the stock is trading higher than its initial price.
MENLOW: It is, but not quite by the same percentage that you saw with Chipotle. The big difference with them is that the investors were looking for a much more aggressive expansion campaign to come into the United States. They are looking to expand in the U.S., but they`re still putting the thrust of their business efforts into Canada. So it`s a theme that is proven, but for the most part, it`s one of those that`s a nice company, but we`re looking for something with more excitement like a Chipotle.
O`BRYON: Anything exciting coming up?
MENLOW: Well, I don`t know that there`s going to be anything on the immediate horizon that really needs to be looked at, but I have to reiterate what we`ve been saying to all our clients that, everybody is very tired of the energy market and all the derivative IPOs that come to market. Even though that might be the case, the fundamentals are solidly in its favor, even with energy coming down. So you have diminishing supply for increasing demand in a product and the formula is just going to spell success for future IPOs if people have patience.
O`BRYON: All right, thank you very much. We`ve been speaking with David Menlow, president of the ipofinancial.com.
