In a year when tech and internet stocks took a hammering, few such deals stand out. One of them was Ixia, which came to market on October 17.
It was hardly a good time for new issues, as the Nasdaq and the Dow Jones indices were both suffering another dizzy downturn, registering 10% and 6% losses in the days before the deal was priced. And the composite of stocks of comparable companies was down 15%. Only one other deal was priced during Ixia’s 10-day roadshow, and 16 deals had been pulled.
Nonetheless lead-manager Merrill Lynch decided to go ahead. “Ixia has strong business fundamentals and financial characteristics,” says George Francisco of Merrill’s equity capital markets group. “It has growth on the top line, and a strong profit on the bottom line.” Its gross margins are significantly above the industry norm at 80%, and it has a bottom line strong enough actually to allow investors to assess it on a price-earnings basis.
That comes from what Francisco calls Ixia’s “mission critical” work for its clients. “It’s a tech equipment maker, which is usually an important but relatively mundane business. But in Ixia’s case it makes the equipment which its clients use to test their equipment. So it has to be at the leading edge of technology and outperform the network gear which it tests.”
A look at its client list proves Francisco’s point. Its biggest is Cisco Systems, which uses Ixia equipment in its research laboratories to test its routers. Other users of Ixia include Juniper Networks, Lucent Technologies, Nokia, Redback Networks, and many other leading tech firms, as well as a growing number of start-up companies.
Add that to its strong financials, and there was not a great deal of downside for investors, even in such choppy markets. It was priced on October 17 at $13, a dollar above the $11 to $12 price range, and after the 15% greenshoe was exercised Ixia had raised $82 million. It opened at $20 1/16th, closing up slightly at $20 1/2 on a day when the Nasdaq stayed flat. But its aftermarket performance has been good, especially in the face of yet another sell-off in the post-election uncertainty in November. It now trades at around $30 a share.
