Inovalon Holdings, by our account, was more than 20x oversubscribed. The deal was underwritten by some of the best in the business and the demand for the IPO turned into a $6.16 premium above the offering price–or a 23% gain upon opening. But almost immediately, the story changed and ‘INOV’ was suddenly not a desired equity. Within the first 90 minutes of trading, the stock dropped more than $5.00 and the deal closed its opening day of trading at $27.00–flat as compared to its offering price.
What the heck happened?
There’s a couple things to take note of–according to senior managing partner of IPOBoutique, Scott Sweet.
“It could be the case that this IPO was over-priced from the start,” Sweet said. “The available color matched the increase in range and pricing. The underwriting group could possibly then make a shadowy attempt to stabilize the deal initiating investors to buy the dip, and eventually get walloped.”
Another trend that likely played out was the ‘weak’ hands the deal was placed in.
“It appears the book was weaker than anyone could anticipate,” Sweet said. “The flippers were out in full-force and that hurt the stock from the start.”
A note from Reuters states that ‘INOV’ could have been the case of mistaken identity as it was exposed to hot themes like big data, cloud computing and healthcare reform, but not really the hyper-growth story.
Yet, going on the reputed hefty levels of oversubscriptions, investors were treating the company almost like it was another Box, Lending Club or Shake Shack, to use a few recent IPO examples.
The deal continued its fall early in the session on Friday opening below the offering price at $26.62 and hitting a low of $25.89 before rebounding in early trading.
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