SecureWorks IPO May Price at Low End of $15.50-$17.50 Range or Below
April 21 2016 - 12:10PM
Dow Jones News
SecureWorks is poised to end the longest drought in technology
initial public offerings in seven years, but whether others will
soon follow is an open question.
SecureWorks, the cybersecurity arm of Dell Inc., is set to price
its shares after markets close Thursday in what would be the first
tech IPO in four months.
Investors and other technology companies will be watching
closely for an indication of the health of an IPO market that has
struggled mightily this year, but lately has shown signs of
life.
In an ominous sign, SecureWorks shares are expected to price at
the low end of the $15.50 to $17.50 range the company is targeting,
or possibly below it, according to people close to the deal. In its
so-called roadshow presentations for potential investors, the
company has met skepticism due to its lack of profitability and the
recent poor performance of its peers, according to people who are
considering buying shares in the IPO.
Still, SecureWorks isn't saddled with a rich private-market
valuation like some Silicon Valley startups, and that could help
smooth its entry into the public markets. Even if the shares price
slightly below expectations, a decent trading performance Friday
would continue a recent string of successful recent debuts and may
pave the way for other companies—both within and outside tech—to
tap the public markets.
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 more 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% after pricing at the high end of its target
range.
To be sure, the IPO market has a big hole to dig out of.
The first quarter was the slowest 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.
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 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 tap the equity market again soon,
she said.
In its prospectus, SecureWorks warns potential investors that it
has a history of losses and may not achieve or maintain
profitability. The company generated $72.4 million in net losses in
fiscal 2016, compared with $38.5 million the year before.
Cybersecurity stocks have also 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 cyber security ETF, PureFunds ISE Cyber Security
Exchange-Traded Fund has lost 9.5% in 2016.
SecureWorks isn't a perfect bellwether for the current tech IPO
market. It's 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 could still help break a logjam formed by
many of those billion-dollar startups that have been waiting in the
wings.
Dell parent Denali Holding Inc. is aiming to sell 9 million
shares of SecureWorks in an offering that would raise $149 million
at the midpoint of the price range. The offering is part of an
overhaul of the PC maker that includes its $67 billion pending
acquisition of EMC Corp.
SecureWorks is to trade on the Nasdaq exchange under the symbol
SCWX. The deal is being 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 21, 2016 11:55 ET (15:55 GMT)
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