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The Boston Globe OnlineBoston.com Boston Globe Online / Business / 2001 Globe 100

Painful IPOs

By Ronald Rosenberg, Globe Staff, 5/22/2001


o how bad was the market for initial public offerings last year? For most investors, rather painful.

Of the 32 Massachusetts companies that journeyed to Wall Street to sell their first shares to the public, 25 saw their stock prices sink an average of 65 percent. Most were high-tech and dot-com firms. Five at the bottom of The Globe 100 IPO list had shares that plunged more than 91 percent.

On the other hand, those same 32 companies collectively raised a record $6.9 billion last year -- more than 2.5 times the $2.7 billion collected in 1999, when 36 companies launched IPOs.

And while two of last year's IPOs accounted for 53 percent of the total -- the $1.913 billion raised by Genuity Inc. of Woburn and the $1.734 billion raised by John Hancock Financial Services, of Boston -- the remaining 47 percent, or $3.23 billion, still exceeds the 1999 total.

Still, the hefty amounts investors spent do not mask the deep disappointments. For investors, IPO was really IOP: I Over Paid.

Just as brutal a free fall was experienced by 31 of the 33 Massachusetts companies that launched secondary offerings last year.

With the exception of two companies that were acquired, all but two - Boston Private Financial Holdings and Inverness Medical Technology Inc. of Waltham - experienced a drop in stock price after they sold new shares in a formal offering.

The rapid Wall Street downturn has left some companies in the Class of 2000 scrambling.

Healthgate Data Corp., of Burlington, saw its shares dive more than 97 percent, from $11 in January 2000 to 25 cents at the end of March. Healthgate is changing its business model from an advertising-supported supplier of online health care data to a subscription-based service for 700 hospitals.

''We were very surprised how quickly our stock sank,'' said William Reece, Healthgate's president and chief executive, noting the 75-employee company still has about $13 million in cash. ''We were a low-profile company, focused on building a profitable company, but the speed with which the market turned on us and others was amazing.''

Perhaps the biggest disappointment was Genuity Inc., the Internet services company spun out of Verizon following the merger of Bell Atlantic Corp. and GTE Corp.

Investors in the Woburn company saw their IPO shares sink more than 80 percent by the end of the first quarter. The company recently cut its revenue forecast and announced a 12 percent work force cut of 5,200 employees.

Even promising telecommunications equipment suppliers, once the darlings of Wall Street in the late 1990s, were savaged.

Avici Systems Inc., which is trying to challenge Cisco Systems Inc. and Juniper Networks Inc. in the high-power computer networking arena, had the highest IPO price - $31 a share - and raised $217 million. Shares of the North Billerica company soared to more than $50 a share before plummeting to $8 at the end of March, a 74 percent fall from its offering price.

The bargain basement stock prices have led to some acquisitions, albeit far below IPO prices. Last summer, Mainspring Inc., the Cambridge business strategy consulting firm, raised $48 million selling four million shares - 21 percent of its outstanding stock - at $12 each, which gave the company a market capitalization of more than $220 million.

Mainspring - whose sales soared 434 percent last year, and which was praised in late February as one of the top 100 ''best managed fastest growing technology companies'' by Forbes ASAP magazine - saw its shares sink to an all-time low of $1.50 at the end of March.

Last month, the stock rose to $3.20 before IBM Corp., a MainSpring customer for the past two years, agreed to pay $4 per share in cash, or $80 million, for the entire company.

''We were caught in the market downturn and treated unfairly, as nearly everyone else was,'' said John M. Connolly, Mainspring's president and chief executive.

''But we were the only one of 12 Internet professional services consulting firms to go public,'' he said. ''And while the stock went down, you can't fight the realities of the marketplace. Still, IBM, which does not do many acquisitions, saw the quality in this company and paid cash.''

Just seven companies in the IPO class of 2000, led by Sonus Networks Inc. of Westford, prospered from higher stock prices, albeit way below the 1999 boom.

''I think investors give us credit for delivering value in our products and services and that we are not fighting against 100 companies like ourselves,'' said Hassan M. Ahmed, Sonus president and chief executive. The fast-growing, 740-employee supplier of voice infrastructure switching products competes largely against Lucent Technologies and Cisco Systems.

One of the biggest IPO successes last year involved one of Boston's best-known companies. John Hancock Financial Services Inc. raised more than $1.7 billion, before underwriter fees, in a Jan. 26 initial public offering. Since then, the stock has more than doubled from its original $17 a share to over $38 a share.

Among the other five companies that have seen stock appreciation, three are involved in biotechnology and medical research products.

If you invested $1,000 in Sonus Networks Inc., the top IPO last year, your shares, after a 3-for-1 split, would be worth $2,593.50 - a 160 percent gain.

But if you had invested $1,000 for 91 shares of Healthgate Data, the worst-performing IPO in Massachusetts, your stock would be worth $22.75 - just enough to buy a book on IPO investing.

If you had invested the same $1,000 in both the top and bottom IPOs of 1999, you would have bought 38 shares of Akamai Technologies Inc., worth $6,110 by March 2000, and 77 shares of Mothernature.com Inc., the vitamin firm, valued at less than $243 in March 2000.

But if you held onto that Akamai stock past last summer, your once-soaring shares came plummeting back to earth this spring, making them worth $325 just before April 1.

And your Mothernature.com shares? They would be wallpaper today, rolling in at $4.84, or 11 cents a share.

So a $2,000 investment made in the two firms in 1999, worth $6,353 one year later, would now be worth a pathetic $330.


Ronald Rosenberg can be reached by e-mail at rosenberg@globe.com.


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