tl;dr: If you cut the price and number of shares you want to sell, you too can go public!
SecureWorks went public today, marking the first US tech IPO of year.
As Mattermark noted previously, the company’s IPO matters more than it usually might as it is a bellwether of sorts. Given the recent dearth of tech IPOs, being first out of the gate is notable. How public investors receive SecureWorks will be watched closely by other companies potentially planning offerings.
SecureWorks was flat in its first day of trading, meaning that any potential catastrophe has been averted, at least for now. Its modest, but successful debut may encourage an IPO cycle, boosting liquidity for growing technology startups, private investors, and employees.
Or it may not. Let’s take a closer look.
Cheaper By The Less
SecureWorks priced its IPO at $14 per share. Previously, it indicated a potential range of $15.50 to $17.50. At $14, the company sold its shares at a 20 percent discount to its highest initial expectations. That’s not fatal of course, pricing an IPO is an arcane task involving secret societies, elaborate handshakes, and obscure mating rituals.
Notable in the repricing, however, was a decline in shares offered. Here’s the New York Times:
SecureWorks raised $112 million, selling eight million shares. It had been marketing nine million shares within the range of $15.50 to $17.50, indicating that demand was weaker than expected.
So, a lower price, and less total money raised. The difference between 9 million shares at $17.50 and 8 million shares at $14 is $45.5 million. That delta represents 40 percent of its total raise today, a material difference. Looking from the other direction, the company raised 28.8 percent less than it had initially hoped. Some companies do finally price above their range, of course, but we can set aside that potential for today.
The company was valued at more than $1 billion when it debuted, making it a public unicorn.
When SecureWorks shares began to trade, they did so at a discount to its offering price, starting the day at $13.89. That was a modest 0.8 percent decline. Later on in regular trading, the company recovered past the $14 mark, rising as high as $14.60. At the time of writing the company is completely flat at $14.
While we can calculate monies not raised, what matters in this case is that SecureWorks raised the cash it needed to continue its growth, and finance its ongoing operating losses.
A win is a win.
A Tough Cycle
SecureWorks selected an IPO day that was not auspicious, for reasons outside of its control. Today, Alphabet and Microsoft both saw their shares fall after they reported earnings that missed investor expectations.
The bad news continues, however. According to CNBC, the broader technology sector has now turned “negative” on a year-to-date basis. The NASDAQ is also off so far in 2016. So, SecureWorks’ IPO debuted into negative sentiment, and market chop.
That’s doing your IPO on hard mode, essentially. When you take all that into account, a flat first day for SecureWorks feels almost like something of an accomplishment.
It is nice to have a 2016 IPO, as we can now start to track the year’s newly public crop and contrast it to 2015’s own set of freshly public shops. We’ll need a few more to really get going.
Regardless, it’s time for a bet reset: The question is not when will the first US tech IPO happen in 2016, but how many we will get in total before the year ends. Let’s hope the final tally isn’t uno.