Digital Domain, a leading visual effects company that tried to go public this week, is now weighing alternatives after a tepid response from public investors.
The Venice-based firm, partly owned by director Michael Bay and best known for creating digital effects for such movies as "Transformers" and "Titanic," was expected to begin selling 6 million shares in an effort to raise about $70 million.
But the planned offering didn't inspire prospective investors, at least those prepared to pay the proposed price of $12 to $14 a share. Among their concerns is Digital Domain's plan to expand into risky movie and video game production as well as broader market volatility.
"One of the big questions for investors is: Why is this a hot IPO?" said Anthony Valencia, an analyst at institutional investor TCW Group in Los Angeles. "They are going into a new business where they don't have a track record." He added, "Hollywood doesn't have a very good reputation with Wall Street investors. . . . It appears they were unable to sell the deal at the price they wanted."
The company stated in a recent filing with the Securities and Exchange Commission that it would use the proceeds from a public offering to pay down debt and transform the company from a work-for-hire commercial and movie effects house into a full-fledged production studio with its own pipeline of computer-animated movies and video games.
Digital Domain executives initially told investors they hoped to go public this week.
But on Friday, co-Chairman John Textor said the company might scrap the IPO and stay private.
"We are positively surprised by the interest from private equity sources," Textor said. "The real reason this isn't happening is because we have better opportunities. We received offers that will provide more capital than we originally sought."
Unlike the technology sector, with its surfeit of hot stock offerings, Hollywood IPOs are relatively infrequent and have a mixed record.
Last year, for example, AMC Entertainment Inc. pulled its planned $789-million initial public offering after investors balked at the company's asking price. The theater chain later announced a scaled-back offering, which still has yet to occur.
