A colorful entry in the IPO market

Dynacs Inc. of Palm Harbor plans to take its shares public next week, but market conditions remain volatile.

By MICHAEL BRAGA

© St. Petersburg Times, published August 5, 2000

After several postponements, the company whose technology makes black-and-white athletes sweat in color on Gatorade television commercials is preparing to go public next week. But don't hold your breath.

Dynacs Inc. of Palm Harbor is looking to sell 3-million shares on the Nasdaq Stock Market on Wednesday at a price of $9 to $11 a share. It hopes to raise as much as $33-million to transform its business from serving aerospace agencies such as NASA and the Air Force to catering to film producers such as Walt Disney and Columbia Pictures.

Dynacs' IPO will debut in a still-rocky market for new companies, but if it is successful, the company will be the first in the Tampa Bay area to complete an initial public offering since Z-Tel Technologies of Tampa raised $102-million in December.

Dynacs originally planned to go public in early June, but volatile market conditions forced it to wait. Then, last week, Dynacs lined up with 35 other companies from across the country to try to complete its IPO. Of that group, only 28 companies were successful, and Dynacs, with its relatively small offering and lesser-known underwriter, was not one of them.

This week, Dynacs' underwriter H.C. Wainright & Co. of Boston thinks the company will be able to pull it off. But there is no way to know for sure. For one thing, Dynacs must compete against 36 other companies to get the market's attention, "an unprecedented number," said Kathleen Smith, an investment manager with Renaissance Capital, a Greenwich, Conn., mutual fund company. And IPO market conditions are beginning to deteriorate again.

"Investors are getting nervous," Smith said. "The recent decline in the stock market and fears the Federal Reserve will raise interest rates again has created uncertainty. I can't assure you that all the deals out there will get done this week." Four companies withdrew their offerings completely last week, she said.

If it completes its IPO, Dynacs will be only the third Florida company to go public this year. The other two were Partsbase.com, a Fort Lauderdale company that built an online marketplace for the aerospace industry, and Triton Network Systems, an Orlando manufacturer of equipment for the wireless Internet industry.

"There hasn't been a healthy IPO market for months," said Barry Alpert, director of new business development for St. Petersburg-based Raymond James & Associates. "Investors have become very discerning. They want to see companies that can make money."

At first glance, Dynacs looks like what investors are looking for. The 15-year-old company has growth potential and, unlike other technology companies, it hasn't been bleeding red ink. Dynacs has had only one unprofitable year in the past four, losing $1.6-million in 1999 on $55.3-million in revenues.

The problem with Dynacs, according to Irv DeGraw, research director for Sarasota-based WorldFinanceNet.com, is that 96 percent of its revenues come from an industry it is trying to move away from.

For its first 13 years, Dynacs concentrated on updating computer and satellite networks for NASA and the Air Force. Since 1998, however, the company has been trying to make a transition to the media business. It has developed an economical way of colorizing black-and-white film, technology used in the Gatorade commercials, the X-Files television series and in the 1998 movie Pleasantville, for example. Because it uses labor based in India and Indonesia, Dynacs claims it can halve the typical $500,000 price tag of colorizing a full-length motion picture.

But so far, DeGraw says Dynacs has not been able to prove it can make money from its media venture. Revenues from its media division fell 36 percent to $902,902 for the first six months of the year, compared with the same period a year ago.

"They haven't developed a good foothold in the media industry yet," DeGraw said. "It just seems to be diluting their focus from what they really do well, which is aerospace."

DeGraw acknowledges that focusing exclusively on the aerospace industry is risky because NASA and the Air Force could cut back their contracts. Therefore, he says, Dynacs needs to diversify.

"It is just not clear from an investor's standpoint whether they can succeed," DeGraw said. He predicts the stock will rise moderately after its IPO and then fall again.

"The market will value Dynacs as an aerospace company," DeGraw said. "But that's not what it is trying to be."

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