The heck with IPOs as a way to judge a market. Secondaries tell a much better story. Why would you ever put in for stock in a secondary unless it was deeply in the hole, meaning that it came at a substantial discount to where a stock was trading ahead of the deal?
But we got two deals this week that showed the true power of this market: 25 million shares from Dollar General (DG) shareholders, priced at $45.20 and 26 million Dunkin Brands (DNKN) shares at $29.50. Neither stock was sold at much of a discount to the last day's trading.
Both stocks immediately went to a premium, meaning that you made money on both deals instantly.
That's a sign of true health. More importantly in the case of Dunkin Brands a whole slew of officers and directors bought stock in huge amounts, not just token size takes. The shares buys were some of the most aggressive I have seen in some time. While the sellers might have been the private equity guys ringing the register on a phenomenal deal, the buyers were people who aren't going anywhere and can't do any selling for at least six months as per insider trading laws.
What a statement!
It's true that dollar stores have been all the rage with even Family Dollar (FDO) reporting a terrific number this week. It's a terrific secular trend that I have been riding for some time as the stores have catered to the lower classes and moved up the food chain with more middle-class buyers. Given that about a third of the nation is on food stamps and these stores have moved aggressively into food, including packages made specifically for dollar stores, the case could be made that we have something big going on here. So you could say that Dollar General was unique in its opportunity.
But Dunkin Brands wasn't unique at all. It is part of a big secular coffee drinking trend and it did put through a terrific dividend -- it now yields 2% -- and it has gained 20% for the year. But it was a pretty run of the mill secondary and it turns out there was so much demand that they had to increase the size of the deal and raise the price of the offering which is just downright remarkable.
So, while some want to draw the conclusion that red-hot IPOs like the recently-minted Millennial Media (MM), Brightcove (BCOV), ExactTarget (ET) and Annie's (BNNY) are signs of froth, I think the success of the Dunkin and Dollar deals shows that there's just tons of money that want high-quality merchandise at a minimal price break and that bodes incredibly well for the second quarter of 2012, a really huge statement after the best quarter since 1998.
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