Early DOT.COM Investors Reaped Large Stock Price Increases.

Business Editors

MILWAUKEE--(BUSINESS WIRE)--Oct. 2, 2000

Premium Prices Paid Even Though Only One was Making Money

Emory Business Valuation Study to be Published in September

A new national study reveals that DOT.COM companies that started as private firms and became publicly traded businesses produced stock price increases averaging 117 percent for early investors.

The study, which compared 53 DOT.COM initial public offerings (IPOs) that occurred from May 1997 through March 2000, showed that the average discount in stock prices given to early investors who purchased shares within five months before the IPO was more than 50 percent. Further, the study showed that over a short period of time - 90 days after the IPO - the average value of the discount grew even more, to 79 percent below the price of the publicly traded stock.

"Nearly all the transactions studied were of new economy, high-tech, rapidly growing companies, and only one of them was making money," said John D. Emory Sr., one of the study's authors and president of Emory Business Valuation, LLC, a Milwaukee-based business valuation firm. "When these entrepreneurs were looking for private capital in the early stages of development, DOT.COM companies were listed as extremely risky investments. Sometimes, but not always, risky investments pay big dividends, and the study shows that, this time, the risk paid off in a big way for dozens of companies that now include well-known brand names such as Priceline.com, MP3.com and Amazon.com."

"All but one of the companies in the study were losing money at the time of the IPO, and yet a majority of them had top-quality national underwriters such as Morgan Stanley; Bear, Stearns; Donaldson, Lufkin & Jenrette; Prudential Securities; and others," added John D. Emory Jr., a co-author of the study and son of the firm's namesake. "Even though many of these DOT.COM companies were not fiscally sound by traditional accounting standards, there seemed to be little impact on their ability to sell the stock at a premium price at market."

Emory Sr. also pointed out that during the 35-month period of the study, a large majority of the deals took place in 1999. "If the bloom is coming off the DOT.COMs in 2000, 1999 will be remembered as the year when a lot of them were in their glory."

He added that the companies included in the study covered a broad range of business and industry, ranging from stamps and pet supplies to airline tickets and music, vitamins, software and groceries. The largest concentration of firms was in the information services field, with catalogues and mail operations second, the study showed.

Geographically, more than one-third of the firms were California-based, which led the nation in the study. New York was second with about 15 percent, and Washington was third with about 11 percent. Texas, Virginia, Illinois, Massachusetts and Colorado followed the top three states. Thirty-three states had no DOT.COM transactions. Nearly 5 percent of the transactions were from foreign companies in China, France, Japan and Canada, the study found.

Emory Jr. said the study also found that even though these were new economy businesses viewed as young and untried with little history, adverse financial statements and risky ventures, their ability to generate capital and build a market for their stocks was comparable to more established, traditional business IPOs. Emory Business Valuation conducted a similar study in 1997 of pre-IPO discounts of more established and traditional companies, and the results were fairly consistent with the new study.

"The comparison of the two studies shows that whether a company is financially sound is not the main factor. The key element found in the DOT.COM study is that once the IPO was seen as inevitable, the stock price took off like a rocket," said Emory Jr.

The complete study and results will be released in October 2000 in Valuation Review, a quarterly publication of the Business Valuation Committee of the American Society of Appraisers (ASA).

John Emory Sr. founded Emory Business Valuation, LLC, in February 1999 after 31 years at Robert W. Baird & Co., where he provided Baird's appraisal services for privately owned companies and their securities. He served for the allowed six years on the American Society of Appraisers Business Valuation Committee. He is a past president of the Wisconsin Chapter of the ASA, a member of the Employee Stock Ownership Plan Association Valuation Advisory Committee and has been chairman of its Discount for Lack of Marketability Subcommittee. John D. Emory Jr. and F. R. Dengel III are vice presidents of Emory Business Valuation, LLC.

Emory Business Valuation provides independent valuation services for businesses and individuals needing appraisals of estates, gifts, employee stock ownership plans, stock options, voting trusts, buy/sell agreements, blockage discounts, corporate planning, sales of businesses, mergers, spin-offs, partnerships, limited liability companies, divorces, nuptial agreements, holding companies and other transactions.

More details about the study can be found at www.emorybizval.com.