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After months without activity, the market for IPOs is picking up.
Kate O'Sullivan, CFO.com | US
August 5, 2009
It's a sign of just how bad the market for initial public offerings has been when a report of a mere 12 U.S. offerings raising $1.6 billion in the second quarter gets people talking about a rebound. The numbers are anemic compared with the good old days of 2007, when the spring quarter saw 79 IPOs generate nearly $12 billion in proceeds. Yet the slight turn might be a harbinger of better things to come.
Indeed, the dozen IPOs in the second quarter provided the first quarter-over-quarter increase since the end of 2007, prompting many market-watchers to hope that the window for new offerings is finally opening again, even if only a crack. There are other hopeful signs, too, says Matt Toole, deals analyst at Thomson Reuters. "For so many weeks there was nothing, but there has been a pretty big uptick in the number of IPO filings," he says, noting that in the month of July, 22 companies filed to go public.
"These companies aren't necessarily going to come out in the next month or two, but it shows confidence in the market," says Toole, adding that while August is traditionally a slow month on Wall Street, "September will be pretty big."
The stock market's sustained rally since March has many companies rushing to put together prospectuses while the time appears right, or at least better than it has been. Private-equity-backed companies such as Avago Technologies and Dollar General, both owned by the giant Kohlberg Kravis Roberts, are among those expected to list in the coming months.
There's also pent-up demand for IPOs, and not just from investors eager for positive market news. "You've got the largest number of private companies held up in private equity and venture portfolios that you've ever had in history," says Benjamin Howe, chief executive and co-founder of America's Growth Capital, a boutique investment bank based in Boston.
"As soon as these guys can get liquidity at a reasonable valuation, they're going to take it," says Howe. He predicts "reasonably robust" IPO activity in the fall, citing technology, health-care, and clean-tech companies as those most likely to try to raise equity. Toole says the IPO pipeline — companies that have already filed to go public — features financial-services companies, some real estate businesses, and some consumer-products companies.
Those companies that do test the waters will be "larger, profitable, growing companies, whose CEO and board members feel like there is very low risk of failure on the IPO," says Howe. One such company is Ancestry.com, a 20-year-old business that since 1997 has charged its subscribers to trace their family histories online. The company, which filed its S-1 this week, saw earnings of $8 million on revenues of $108 million in the first half of the year. Executives at the genealogy site, whose majority owner is the private-equity firm Spectrum Equity Investors, are aiming to raise $75 million.