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Executives at Neutral Tandem Inc. (TNDM) were no doubt cringing on Thursday when the Dow Jones Industrial Average dropped 362 points. The last thing that a company going public wants is a down market. But Neutral Tandem bucked the odds, pricing its initial public offering above its anticipated range, then storming out of the gates with a strong gain on Friday. Shares of the telecommunications services provider closed at $20.28, up 45%, higher despite a choppy session in the broader market. Chicago-based Neutral Tandem raised $78.6 million selling 6.25 million shares at $14 a share, above its anticipated range of $11 to $13 a share. The company will use the money for further expansion of its business. "You have to give the underwriters credit for making this work in this environment," said Ben Holmes, publisher at IPO research firm MorningNotes LLC. Neutral Tandem provides wireless, wireline and broadband companies the infrastructure to exchange voice traffic, eliminating the need to rely on the local exchange carriers to complete calls. For the first six months of 2007, Neutral Tandem reported net income of $2.5 million on revenues of $38.1 million versus net income of $3.3 million on revenues of $24.2 million for the same period in 2006. The company raised nearly $50 million in three rounds of venture financing since it was founded in 2003. Among its investors are DCM-Doll Capital Management of Menlo Park, Calif., New Enterprise Associates of Baltimore, Chicago-based Mesirow Financial Holdings Inc., Montagu Newhall Associates Inc. of Owings Mills, Md., and Milwaukee's Wasatch Advisors Inc. None sold shares in the offering. DCM is the company's largest shareholder with a 25.5% stake worth $104 million at the $14 IPO price. New Enterprise Associates owns 23.8% of the company with a $97.3 million valuation. James Allen, Jason Luce, Bob Shepardson and Tony Florence of Morgan Stanley served as lead underwriters for the deal, while Michael Cochrane of CIBC World Markets was co-lead manager of the offering. Raymond James, Thomas Weisel Partners LLC and William Blair & Company LLC were co-managers. Gerald Nowak, Andrew Terry, Theodore Peto, James Antonopoulos and Mark Horvick of Kirkland & Ellis LLP served as counsel to Neutral Tandem in connection with the offering. Richard Drucker and Arthur Einav of Davis Polk & Wardwell represented the underwriters. While the fourth quarter is typically a strong one for IPOs, Holmes said the performance of the broader market will dictate the pace and performance of new issues. He said it will be tough for finance companies to go public due to the recent weakness seen in that sector, though there should be a wide variety of companies from other sectors making their debuts, particularly Chinese companies. "You're seeing a mix of IPOs coming out, which is good," he said. "You don't want to see a concentration of one sector or one industry.  Deal Video
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