IPOs race ahead, but investors cautious
A surge of companies is braving the choppy stock market with initial public offerings, hoping to reach Wall Street before investors have their fill.
The rush to go public before Thanksgiving is on, with seven companies launching initial public offerings this week through Thursday, and more expected Friday. Halfway through November, 27 companies have gone public, making it the biggest month since last November and on pace to be the busiest month since the 67 IPOs in August 2000, says Renaissance Capital's IPOhome.
Investors, though, are approaching the bounty of deals with caution amid continued market turmoil, including Thursday, when the Standard & Poor's 500 tumbled another 19 points to 1451.
"Investors are willing to take a step back and say they'll take a pass," says Paul Bard of Renaissance Capital. "The calendar is big enough and the market is skittish enough."
Despite the cautiousness, 2007 is shaping up to be a banner year for IPOs. Bard estimates at least 217 IPOs will be completed by year's end, making it the biggest year for IPOs since the dot-com boom. Still, signs of IPO investors' selectivity is clear from the:
- Mixed response of IPOs during the week. Consider the four IPOs that started trading Thursday. Two, radiology company Virtual Radiologic and stock index provider MSCI, jumped 22 percent and 39 percent from their IPO prices. Meanwhile, EnteroMedics and EnergySolutions met a lukewarm reception and closed flat, and laser company Reliant Technologies pulled its IPO. Hedge fund Och-Ziff Capital Management and shipping company Navios Maritime are trading below their IPO prices in their first week.
- Preference for Chinese IPOs. Uncertain about the U.S. economy's strength, investors are gravitating to shares of Chinese IPOs. Roughly 13 percent of the year's IPOs were of Chinese companies, says Thomson Financial, including three of the five best-performing deals. U.S. companies now account for less than a sixth of the world's IPO dollar volume, down from a third five years ago, says Thomson's Richard Peterson.
- Continued aversion to leveraged buyout bailouts. Just one of the IPOs expected this week, Stewart & Stevenson, and one other this month have been of companies backed by private-equity investors. Private-equity investors often buy companies, add debt to their balance sheets, then try to sell the companies back to the public for a profit. Investors have soured on private-equity investors for now, says Francis Gaskins of IPOdesktop.com.
Investors may be choosy, but the IPO market's ability to keep pumping out deals despite choppiness in the broad market and continuing subprime woes shows investors' appetite for IPOs still exists.
"The IPO market is sidestepping the subprime mortgage mess and managing to march to its own beat," Peterson says.
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