X-Mas Ideas

VIRGINIA BUSINESS

TAKING STOCK

X-MAS IDEAS

For Christmas this year, my brother wants shares from a promising initial public offering. I'm thinking instead of buying him a designer necktie, not only because it will be easier to wrap, but because IPO pickings are slim. A number of Virginia companies that have announced their intent to go public have put those plans on hold, at least until the market regains a steady hand. For many, that will mean after the holiday season.

IPOs have been strong these past few years, but they're susceptible to huge swings. "It's a manic-depressive market," says Tom Taulli, an analyst with IPO Monitor.com. "When things are good, it's real good." And when things are bad? Well, break out the eggnog and wait for better times. "Usually they'll say something like 'adverse market conditions.' Everyone's been canceling, except for a handful," Taulli notes. "It doesn't say something bad about the business, just about the IPO market."

The need for capital endures, so the dry spell won't last forever. Keep an eye on these Virginia companies:

Colfax Corp. (NYSE, CXC: pending) announced plans in August to go public, but the Richmond company has not budged. Executives still want to move in that direction, but the volatile market has left them in limbo.

Virginians may be more familiar with the CEO than they are with the company. Philip W. Knisely was formerly president of AMF Industries. He was part of the talent team Richmond businessman Bill Goodwin brought in to build his bowling and entertainment business.

AMF would have been an excellent environment in which to perfect the acquisition game. According to securities filings, Knisely and other Colfax stockholders embarked on a plan to acquire, manage and grow industrial companies in 1995. The idea was to bring targeted companies together, with Colfax as the parent company, to create greater growth and higher margins. Colfax manufactures industrial products, such as pumps, gear drives, AC and DC motor controllers and remote-control systems. In 1997, the company generated sales of $536 million.

That's one company in a holding pattern; here's another from further north. Virginia Capital Bancshares (Nasdaq, VCAP: pending) is the formal name of the company, but locals will recognize it as Fredericksburg Savings Bank, which has branches in Stafford and Spotsylvania counties. The company filed its intent to go public in September.

The bank was created in 1922 in response to a need for housing in the Fredericksburg area. That need seems perpetual, or at least recurring, because the Fredericksburg area is among the commonwealth's fastest-growing regions. The community bank has made its mark by attracting retail deposits and making consumer and residential mortgage loans. That remains its niche in a banking environment that's moving quickly toward opposite poles -- the behemoth nationals and the local lenders.

Fredericksburg Savings Bank is a federally chartered mutual savings and loan, but it plans to convert from a mutual to a stock company with the IPO. As of this summer, the bank had assets of $472 million, deposits of $374 million and equity capital of $83.5 million.

The story is slightly different for Alexandria's Softworks Inc. (Nasdaq, SWRX: $6.50). The company raised $11.9 million on Aug. 4 at $7 per share. Then the market took a bungee jump.

"We were one of the last to make it out before the door slammed shut," says CFO Robert C. McLaughlin. The company had planned to set an offering price the previous week, but the market was shaky. "We waited until the weekend was over and priced Monday night," McLaughlin says. "There was never talk of canceling. ... We really felt the company had its fundamentals in place. The day we went out, the market dropped 229 points."

From its debut, the stock fell to a low of $3.10. "It was dropping like a rock, and it wasn't anything we did or didn't do," McLaughlin notes. "But we've come back up and we're confident that we'll continue to go up."

McLaughlin believes in the stock because he has faith in his company's business plan, which includes improving product offerings, expanding sales channels, and seeking strategic partnerships, alliances and acquisitions. The technology company develops management software that helps businesses run more efficiently. Its products, according to securities filings, have been licensed for use by 81 of the Fortune 100 companies.

"That's a hot market. Anything to help corporations automate or cut their costs is usually a winner," says IPO Monitor's Taulli. And he offers another point worth considering: Institutions, rather than individual investors, are usually the ones to get in on the offering price of a new issue. Prior to the recent market jitters, it was common to see a new technology issue double in price on the offering day. Not now. "Individual investors might have a better chance with these issues," Taulli says. "For some of these strong companies that came out of the chute at the wrong time, there's plenty of opportunity for small investors to tap into a bargain."

Many otherwise strong companies are trading below their offering prices, he says. "It's kind of scary, but those are usually the times to start looking. ... Especially a company like this that went public in a tough environment and is still at its offering price."

Be that as it may, I'm still going for the necktie. At least my brother will be able to return it without losing his shirt.

Leigh Anne Larance
Senior Editor