PRA Health Sciences’ initial public offering had its ups and downs.
On the up side, the Raleigh-based company’s shares rose 9 percent on its first day of trading Thursday. On the down side, the company priced its IPO shares late Wednesday at $18 each, below the target price of between $20 and $23 the company had reported in its securities filings.
Pricing shares is an art, with the price pegged to estimations of investor demand by the company and its underwriters.
“It’s Econ 101, supply versus demand. They had the supply out there and the demand wasn’t there at that level,” said John Fitzgibbon Jr. of website IPOScoop.com, which tracks new stock offerings. “Like any retailer, they ratcheted down the price to find the buyers and get it out the door.”
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At the same time, newly public companies like to see their shares rise on the first day of trading. PRA’s shares closed Thursday at $19.62, up $1.62. That first-day bump gave PRA a market capitalization – the total value of its outstanding shares – of $1.12 billion. PRA executives weren’t available for comment Thursday.
By selling 17 million shares in its IPO, PRA will receive net proceeds of $286.5 million after deducting fees and expenses – money that it will use to pay down its debt. The company’s debt totaled $1.26 billion as of Sept. 30.
If PRA had been able to price its shares at $21.50 it would have realized proceeds of $343 million. PRA’s underwriters also have an option to purchase an additional 2.5 million shares at the IPO price within the next 30 days.
Private equity firm Kohlberg Kravis Roberts, which acquired PRA last year for $1.4 billion, had been planning to sell 1.6 million shares of PRA stock alongside the IPO shares that the company sold. But in the end, KKR didn’t go forward with that plan.
Fitzgibbon surmised that KKR was disappointed with the $18 price and “thought the company was too cheap to sell at that level.” Even after the IPO, KKR owns a controlling stake in PRA.
PRA is a contract research organization, or CRO, that helps pharmaceutical and biotechnology companies test experimental drugs and analyze the results. The company has 10,300 employees worldwide, including more than 450 locally. It lost money in 2013 and in the first six months of this year, but in the third quarter it generated $1.2 million in net income on revenue of $320.1 million.
PRA is the second Raleigh CRO to go public within a week. Late last week INC Research sold 8.1 million shares at $18.50. INC shares closed Thursday at $21.35, up 45 cents.
PRA’s shares trade on NASDAQ under the symbol PRAH.