Market Conditions Favorable for IPO, says Professor Michael Lord

Primo sells 8.33 million IPO shares
Reposted from Winston-Salem Journal | by Richard Craver

Primo Water Corp. has set sail with its initial public offering, raising $100 million by selling 8.33 million shares at $12 a share.
The company projected that the stock would sell between $11 and $13 a share in the IPO.

The stock also proved a hit with investors — at least yesterday. It reached as high as $15 a share in trading before closing at $12.95, up 95 cents. The company’s stock is trading under the symbol “PRMW.” The sale of the IPO shares was completed Thursday.

Primo is owned by local businessman Billy Prim, who is also the majority owner of the Winston-Salem Dash baseball team.
The IPO could reach slightly more than 9.58 million shares if its underwriters, which include BB&T Capital Markets, exercise options to buy up to an additional 1.25 million shares to cover over-allotments. Those underwriters have 30 days to buy those shares at the IPO share price.

Most of the IPO proceeds already are allocated.
In June, Primo said it would pay $60 million in cash and $45 million in stock for Culligan Stores Solutions, a unit of Culligan International Co. of Rosemont, Ill. Primo said it would issue an additional 3.75 million shares to cover the stock commitment to Culligan.

Primo officials could not be reached for comment yesterday.
Analysts said that Primo, and The Fresh Market Inc. of Greensboro, picked an advantageous time to launch their IPOs.
The Fresh Market sold its IPO shares at $22 on Thursday. The share price jumped to $35 in early trading yesterday before closing at $32.11, up $10.11.

“The general market conditions are really interesting right now, and highly favorable to doing an IPO,” said Michael Lord, an associate professor of management at Wake Forest University. “This is a big turnaround from even just a few weeks or months ago.

“Primo was fortunate to sell its shares into a very strong overall market. IPOs always are strongly influenced by the general market mood. They also got right in the middle of their offering price range, which is a solid result.”

One advantage to the Primo strategy is that Prim is accustomed to taking major risks with a startup company.

In 1994, Prim founded Blue Rhino Corp. as a propane-cylinder exchange business. Despite not being profitable when it went public in May 1998, Blue Rhino made its debut with a share price of $13.

In April 2004, Blue Rhino was sold to Ferrellgas Partners LP for $343 million. At that time, it was the market leader with more than 29,000 retail sites in 49 states.

Primo has been pitching the IPO primarily on confidence that it would gain sales and market share because of existing distribution channels and on more public awareness of its biodegradable water bottle, which it introduced in April 2008.

Analysts said that although Primo has not had a profitable year since being founded in 2004, investors likely were encouraged that Culligan had a 2009 profit of $4.3 million.

Primo said that other parts of the IPO proceeds would be used to pay debt, redeem a portion of its outstanding preferred stock, pay accrued and unpaid dividends on that stock and pay fees and expenses connected with these financial actions.