Shares of SecureWorks Open Lower in Market Debut
April 22 2016 - 11:30AM
Dow Jones News
Shares of SecureWorks Corp. opened lower Friday, ending a
four-month drought of U.S. technology initial public offerings, the
longest in seven years.
The shares opened at $13.89, 0.8% lower than their IPO price of
$14. They started trading on the Nasdaq exchange under the symbol
SCWX.
The cybersecurity arm of Dell Inc. priced its IPO below
expectations Thursday, raising $112 million through the sale of 8
million shares. It had targeted a sale of 9 million shares at
$15.50 to $17.50 each.
The disappointing pricing raised questions over whether others
in the sector will follow suit. After a dismal first quarter,
investors and other technology companies hoped SecureWorks would
indicate that the IPO market is returning to health. To be sure,
should the stock trade well Friday, it still could pave the way for
other companies—both in and outside tech—to tap the public markets.
It also would come on the heels of a few other successful
offerings.
There were hints that demand might be soft in the company's
so-called roadshow presentations for potential investors where it
encountered skepticism due to its lack of profitability and the
recent poor performance of rivals, according to people who were
considering buying shares in the IPO.
The first quarter was the slowest for U.S.-listed IPOs since
2009, hurt by a spasm of broader market uncertainty. The tech
industry, traditionally the engine of the IPO market, has been hit
particularly hard, in part by private-market valuations many
investors see as inflated.
But lately there have been signs of life.
Shares of the first major company to debut this year, Bats
Global Markets Inc., which started trading last Friday, are more
than 20% above their IPO price even after underwriters priced them
at the high end of their targeted range and added to the
offering.
MGM Growth Properties LLC, a real-estate investment trust that
raised more than $1 billion, started trading Wednesday and closed
up nearly 5% in its first day as a public company after pricing at
the high end of its target range. Shares of the REIT are currently
up 3.6% from their IPO price.
The fact that SecureWorks shares managed to price at all is a
victory of sorts. No other tech firm has listed shares in the U.S.
since a small Chinese company did so in mid-December. That makes
for the longest drought since the period between November 2008 and
April 2009, according to Dealogic.
Part of the problem is that investors' patience for loss-making
companies has thinned. Many firms that tapped the IPO market early
last year and in 2014 could find interest as long as they had a
clear path to profits. That is no longer the case.
A number of closely watched tech IPOs of the past two years are
trading below their IPO prices, including Hortonworks Inc., Etsy
Inc. and Box Inc.
"The companies that go out in the near term are going to be
profitable or have a near-term path to profitability," said Kristin
DeClark, head of technology equity capital markets at Deutsche Bank
AG. Investors want assurance that a company is funded until it can
break even and won't be forced to tap the equity market again soon,
she said.
In its prospectus, SecureWorks warned potential investors that
it has a history of losses and may not achieve or maintain
profitability. The company had $72.4 million in net losses in
fiscal 2016, compared with $38.5 million the year before.
Cybersecurity stocks have performed poorly in 2016, continuing
declines that began in the second half of last year.
"Investors got overly excited" about cybersecurity stocks in
2014 and 2015 after a series of prominent data breaches, said
Israel Hernandez, senior portfolio analyst at Columbia Threadneedle
Investments. The growth that was implied by the high valuations
"didn't quite materialize."
The cybersecurity ETF, PureFunds ISE Cyber Security
Exchange-Traded Fund, has lost 9.2% in 2016.
SecureWorks isn't a perfect bellwether for the tech IPO market.
It is different from many private tech companies in Silicon Valley,
as it was founded during the last tech boom and is housed inside a
large, established corporate parent.
But a successful debut still could help break a logjam formed by
many of those billion-dollar startups that have been waiting in the
wings.
Dell parent Denali Holding Inc. aimed to sell 9 million shares
of SecureWorks. The offering is part of an overhaul of the PC maker
that includes its $67 billion pending acquisition of EMC Corp.
The deal is underwritten by a group of banks including Bank of
America Corp., Morgan Stanley, Goldman Sachs Group Inc. and J.P.
Morgan Chase & Co.
Write to Maureen Farrell at maureen.farrell@wsj.com and Corrie
Driebusch at corrie.driebusch@wsj.com
(END) Dow Jones Newswires
April 22, 2016 11:15 ET (15:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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