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Over the past few months, the IPO market has been perking up. And, with the recent surge in equities, the good times should continue, right?Well, not necessarily. The fact is that investors are scrutinizing deals. Just look at yesterday's IPO of PennyMac Mortgage Investment Trust (NYSE: PMT). In the offering, the company raised about $335 million. However, the goal was to get about $750 million. In other words, there was lots of investor pushback. Actually, on its first day of trading, the shares of PennyMac fell 4.5% to $19.10.
The company is a real estate investment trust (REIT) that is purchasing mortgages -- at discounts -- and trying to turn a profit. At the same time, PennyMac wants to get federal government support, such as from the loan modification programs. Oh, and the company also has notable backers that include BlackRock (NYSE: BLK) and Highfields Capital Management.
The irony is that the executive staff -- including the CEO -- is full of former Countrywide executives. Yes, they certainly understand the business. But, wait, didn't Countrywide implode?
PennyMac's fee structure is also unique (at least for REITs). That is, it is similar to a hedge fund, with a 1.5% management fee and an incentive fee of 20% (but there are some limitations). In other words, the returns will likely be damped.
While there is an enormous market -- estimated at over $1 trillion -- it's unclear how much profit can be made. The federal government's efforts have been sketchy. Plus, how much liquidity is there for mortgages?
Finally, there are a variety of similar IPOs to contend with PennyMac, such as from Apollo Management LP, Colony Capital LLC, Starwood Capital Group, AllianceBernstein and the Blackstone Group (NYSE: BX).
PennyMac's fee structure is also unique (at least for REITs). That is, it is similar to a hedge fund, with a 1.5% management fee and an incentive fee of 20% (but there are some limitations). In other words, the returns will likely be damped.
While there is an enormous market -- estimated at over $1 trillion -- it's unclear how much profit can be made. The federal government's efforts have been sketchy. Plus, how much liquidity is there for mortgages?
Finally, there are a variety of similar IPOs to contend with PennyMac, such as from Apollo Management LP, Colony Capital LLC, Starwood Capital Group, AllianceBernstein and the Blackstone Group (NYSE: BX).
Tom Taulli is the author of various books, including The Complete M&A Handbook
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