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Global Secure’s initial offering is looking shaky

WASHINGTON – Homeland security is a hot topic in the United States, so it would seem that a company that specializes in services designed to bolster U.S. defense readiness would be an attractive initial public offering.But the IPO of Global Secure Corp. has proved as alluring as a gas mask at a dinner party, with the Washington-based company cutting the expected price of its shares and delaying the date of the offering until next week.Global Secure, which wants to sell 8.25 million shares, offers data-management, emergency-messaging and collaboration software, emergency-response courses and personal-safety products. Formed in 2003, its customers are primarily government entities, public-health organizations and emergency-response agencies.Past companies that have cashed in on the demand for homeland-security services through IPOs include Anteon International Corp. and SRA International Inc., both of which went public in spring 2002, less than a year after the Sept. 11 terrorist attacks. Those companies have more than doubled their stock prices, on a split-adjusted basis, since their debuts.But Global Secure’s offering isn’t attracting the same interest as those that have gone before it, and the company had to cut its proposed offer price to $6.50 a share from $8 to $10 a share. The deal, originally slated to come public this week, has been delayed until next week.Some of the aversion to Global Secure may be that it is a little late to the homeland-security feast: Anteon and SRA International were in business for years before the Sept. 11 attacks, and were able to launch public offerings quickly in the months after the World Trade Center in New York and the Pentagon were targeted.Global Secure was created two years ago expressly to capitalize on the demand for homeland-security services, and has grown through acquisitions in the sector.While there is still a strong need for products from companies like Anteon and Global Secure, investors aren’t as focused on homeland security as they were in that first year after the attacks, says Daniel Morgan, a portfolio manager for Synovus Investment Advisors in St. Petersburg, Fla.”Obviously, after Sept. 11 it was a very hot industry from an investment perspective, but it has waned in popularity since then. It doesn’t have the same kind of spice as it did before,” says Morgan.Global Secure also has a reputation problem: one of its founders and its largest individual shareholder, Ross Mandell, has a blemished past as a stockbroker.Mandell, the chief executive of Sky Capital Holding, was a stockbroker at various companies, including Rodman & Renshaw and D. Blech & Co. His career was marked by a 1995 settlement with the New York Stock Exchange in which he was censured and suspended for six weeks for executing unauthorized trades and taking a stock order from someone other than the account holder.Global Secure declined to comment for this article, citing its quiet period before the IPO; Mandell didn’t return a phone call to his office seeking comment.Mandell, who was chairman of Global Secure’s board until August, has stepped off the board ahead of the IPO, but he will still have substantial influence over the company because he will continue to own 19 percent of it after the offering.The standard warning cited in all IPO prospectuses about the risks of large shareholders – that they “may act in their own best interests, which may not always be the same as other stockholders” – looms particularly large in Global Secure’s case.”I’d be wary” of investing in a stock where a large stakeholder has had brushes with regulators in the past, says Tom Taulli, an IPO analyst and author of Investing In IPOs.”Nowadays, after what happened with Refco, investors assume if there is any hint of a problem, they need to stay away.”Finally, there is Global Secure’s financial performance.Although revenue has been growing steadily since its inception – the company reported total revenue of $11.92 million in its fiscal year that ended in June, compared to $5.13 million in the same period of 2004 – ballooning expenses have dragged it into larger net losses with each passing year.For the 2005 fiscal year, which ended in June, Global Secure reported a net loss of $5.59 million, up from a net loss of $3.25 million in fiscal 2004.SRA and Anteon, the two companies that went public in 2002, are both profitable; Global Secure warns in its prospectus that it may never get out of the red zone.Vail, Colorado


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