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NetSuite's IPO


NetSuite (NYSE: N) today announced the initial public offering of 6,200,000 shares of its common stock at a price of $26.00 per share. As NetSuite’s on-demand ERP system is targeted and limited to small and midsize businesses, I’ve not actually implemented or used the product, however, I’ve seen the product multiple times and do follow the company as I think it’s an exciting company with a lot of upside potential.

The stock opened today for trading on the New York Stock Exchange (NYSE) under the ticker symbol "N" and seems to have raised about $161.2 million. Surprisingly, the stock release price was double the original investment bankers recommendation who predicted a price of about $13.00, however, the Dutch auction set the price at $26.00 (the bankers still netted $9.2 million as part of their completely inaccurate price setting advice).

NetSuite minimized the opportunity for investment banker artificial stock spiking by relying on the Dutch auction process, an infrequently used method to set the IPO price. In almost all public offerings, the investment bankers set the price after measuring interest from institutional investors, who then receive most of the shares. Critics have long held that the investment bankers deliberately set the IPO price artificially low to increase the odds of a big payoff for the investors who first get the shares. NetSuite’s Dutch auction democratized the public offering process by allowing more individual investors to submit bids. The Dutch auction process was of course made famous by Google during its highly touted IPO in August 2004. The net effect of this IPO method is to maximize the amount of money raised by the company issuing the shares, leaving less room for the IPO investors to profit. And it worked for NetSuite, which raised nearly $70 million more than the company envisioned.

CEO Zach Nelson was quite a happy man today. In addition to his 3.4 percent of the company now having a value of about $73 million, he rang the opening session’s bell and commented, "This has been a surreal experience." I can only imagine. He later went on to say "Going public on the New York Stock Exchange is a dream for any start-up, and NetSuite is excited to have reached such a milestone today" … "Our IPO and NYSE listing allow us to help small and medium-sized companies achieve their dreams by delivering a comprehensive software application to run their businesses."

However, the biggest winner today was Oracle’s Larry Ellison, who owns or controls about two-thirds of NetSuite’s stock and his just under 32 million shares are now valued at about $832 million. Ah, the rich just keep getting richer.

Posted by: Jeffrey on 12.20.07
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