Terry Stone said something revealing about initial public offerings when the Clarington Corp. chairman announced the mutual fund company was postponing its debut.
Mr. Stone said bringing a $68-million IPO to market now was not "in the best interest of Clarington's present or future shareholders." He made the statement against a backdrop of new dirt in the U.S. mutual fund scandal.
Plucking headlines from the news yesterday, there was money manager Alliance Capital on the verge of setting a dubious new standard by paying a $250-million (U.S.) penalty to settle regulatory problems, while Prudential got hit with its second whack of charges and yet another fund company, Heartland Advisors, faced allegations of misleading investors by mispricing units.
Clarington doesn't have regulatory issues. However, the company's owners are smart enough to know that their industry has a major perception problem right now with the investing public. It's just like the backlash against dealers about this time last year, when we were all learning how Citigroup's Jack Grubman went about his business.
With everything that's going on in the U.S. market, and the Ontario Securities Commission taking a long look at the way mutual funds are sold in this country, there's not many scenarios that point to mutual fund companies being worth more in a few weeks, or months, than they are right now.
In fact, the scenario facing Clarington likely would have seen the company sell shares at $13.50 (Canadian) each, then watch as the stocks slid lower on more bad news from the United States, and tepid sales for the mutual fund industry in Canada.
No one wants to make a weak debut with an IPO. Everyone wants to make a good first impression with investors. This rule holds even more true in the image-conscious financial services sector.
Last week, for example, saw Griffiths McBurney & Partners leave money on the table in its IPO. GMP Capital could have set its IPO price at well above the $11 it settled on. But the dealer's biggest clients, institutional investors, were also buying its IPO. The company's long-term interests were best served by ensuring those backers and customers enjoyed a sweet, $3-a-share pop in the first day's trading, when the stock briefly touched $14.
Clarington's offering had much the same dynamics, although with a different outcome. There was strong interest in the IPO among the same retail investor crowd that owns Clarington funds -- one source said the deal was oversubscribed by a factor of four. The institutional crowd, however, showed less interest in this small-capitalization play.
Had these investors bought stock at $13.50, then seen the shares slide, they might be tempted to not only dump the stock, but Clarington's funds as well.
The other internal dynamic of the Clarington deal was the nature of the sellers. The company itself didn't need the money, so treasury sales weren't up for grabs. The stock was being sold by Clarington's founders, in a secondary offering. Existing shareholders -- including senior management -- were planning to sell 48 per cent of the company. Mr. Stone was to move half his stake, while president and chief executive officer Adrian Brouwers was selling two-thirds of his holding.
With most of this crowd staying involved in Clarington for the long term, while still seeing the IPO as a once-in-a-lifetime wealth creation event, the sensible course was to wait, and stage the IPO on a day when the market looks better, perhaps after what will hopefully by a successful RRSP season, when the U.S. scandals are off the front page.
With the oil and gas sector flying, and bonus cheques now cut at some dealers, we're seeing movement among the rank and file.
Ali Bhojani was heading up the energy investment banking effort at employee-owned Research Capital. Last week, he moved over to Dundee Securities, a brokerage house with strong roots in the resource sectors, to head up its team of oil and gas deal makers team.
Equity desk moves
The holiday season is also seeing big moves on equity sales desks.
Last week, Paul Sarachman left National Bank Financial, where he had been running the sales team for almost two years after leaving Merrill Lynch. Mr. Sarachman is now driving the expansion of First Associates, the investment dealer arm of Rockwater Capital, as its head of sales.
In Montreal, Eric Bouchard departed yesterday as head of sales and trading at Desjardins Securities, after less than a year with the firm. He's also out of the National Bank Financial stable. As yet, there's no word on a replacement.
© 2007 The Globe and Mail. All rights reserved.
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