Wall Street Journal / Dow Jones Business News
Shares of Kinetic Concepts Surge in Market Debut
Tuesday February 24, 11:20 am ET
By Raymond Hennessey

NEW YORK -- Wound-care company Kinetic Concepts Inc.
(NYSE:KCI - News) saw its shares rise in initial trading Tuesday.
 
Kinetic, based in San Antonio, Texas, opened on the Nasdaq
Stock Market (News - Websites) at $33 a share and on the
New York Stock Exchange (News - Websites) , where it is listed,
at $38 a share. The NYSE opening was 27% above the
$30-a-share price set on its initial public offering of 18 million
shares. At about 10:45 a.m. EST, the shares traded at
$ 38.85 on the Big Board.

The company's IPO, led by Merrill Lynch & Co. (MER) and
J.P. Morgan Chase & Co. (NYSE:JPM - News) , saw especially
strong demand. Entering this week, Kinetic hoped to sell 14
million shares at $27 to $29 a share. It added an extra four million
shares to the deal before pricing and sold the shares above estimates.

The better-than-expected pricing shouldn't have come as
a surprise since Kinetic is "an unusually strong company,"
said Francis Gaskins, president of IPODesktop.com in Brentwood, Calif.

Kinetic makes what it calls vacuum-assisted closure products,
or vacuum-based products that are used to cover and treat
hard-to-heal wounds.

Last year, revenue rose to $763.8 million from $580.4 million
in 2002. About three-quarters of that revenue came from
rentals of its equipment, Mr. Gaskins said.

"That kind of rental income is always higher-quality than
one-off sales," Mr. Gaskins said. "It's recurring, which is important."

Net income, though, fell to $60.2 million in 2003 from $150.2
million a year earlier. However,  that fall in net income came
largely on the back of expenses from a $70.1 million expense
related to its recapitalization, plus the absence of payments
it received for winning an antitrust
suit in 2002. Excluding both items, earnings would have grown
to $76.8 million from $43.3 million a year earlier, according to
offering documents filed with the Securities and Exchange Commission
(News - Websites) .

If there was a red flag for analysts looking at the Kinetic IPO,
it was the lack of proceeds actually going to the company.
Kinetic Concepts is only getting proceeds from 3.5 million
of the shares sold in the IPO.

Private-equity firms Fremont Partners LP and Blum Capital
Partners LP, as well as a number of existing company officers
and directors, are selling the other 14.5 million shares.

Analysts traditionally prefer to see the issuing company
get the lion's share of proceeds from an IPO, rather than
see existing shareholders sell shares at the first chance
they get. But Kinetic Concepts isn't as hurt by the insider
selling as other companies, Mr. Gaskins said, because
it does have profits to use to continue to fund its business
and doesn't need a large infusion of cash from the IPO.

"Only a strong company like this could get away with" having
so many shares sold by existing investors, Mr. Gaskins said.

-Raymond Hennessey; Dow Jones Newswires; 201-938-5354;
raymond.hennessey@dowjones.com