This is a great article from Richard Pearson over at Mox Reports on how things sometimes work behind the scenes. It’s an interesting story of a company, Skinny Pop, making some drastic changes just before their IPO to camouflage the troubles they were experiencing. They bought a fledgling company that was insignificant in the grand scheme of things; they changed their name to Amplify Brands (NYSE: BETR); and started selling themselves as a diversified company. But no one was buying the new narrative. So why did investors buy into it nonetheless? The following excerpt gives you a pretty good idea.
IPO’s are supposedly priced for to provide initial buyers with a pop in share price. That is the way IPOs are supposed to work. But with Amplify, we can see that the stock traded straight down from the very beginning and has continued to trade off by more than 30%.
Investors were clearly not buying the “diversified snack company” line. Nor were they buying the hyper growth story.
The question then becomes: “if this IPO was so bad, how did it get completed in the first place”.
The fact is that Goldman Sachs brings many very attractive IPO deals to market. If you play 10 of these deals, you will probably end up making decent money in seven of them. And in perhaps three of them you will hit some serious home runs. It is worth losing some money on the occasional bad deal in order to maintain a relationship for future home runs.
As a result, when Goldman launches a “favor deal” like this one, there are no shortage of investors who will buy a small slug as a favor to Goldman. They then hold for a brief period and start quietly unloading while they can. This is exactly why the deal never traded up and exactly why the stock is now down by 30%.
To read the full article, go to the source material here at Mox Reports.