Banking & Capital Markets

Gone Fishing

The IPO market goes on holiday.
John GoffAugust 6, 2001

Right about now, corporate fundraisers might want to think about taking a long, leisurely vacation. While analysts and market watchers continue to insist the stock market will rally in either a) the fourth quarter, or b) some other quarter, the reality is, raising equity capital is extremely tough at the moment.

The numbers tell the tale. So far this year, 55 IPOs have been issued. During the same period last year, that figure was more like 255. The few initial public offerings to come to market in 2002 have funneled about $26 billion dollars into corporate coffers, minus underwriting fees. During the first seven months of 2001, first-time equity offerings netted companies around $55 billion.

Sobering stuff. Things aren’t going to get better this week, either. As of press time, only two IPOs were likely to come to market over the next five days. One, for Omnicell, is expected to raise about $48 million for the manufacturer of medical supply systems. The other slated offering, for Mykrolis Corp., could come to market mid week.

The Mykrolis IPO is an interesting story. The company, which reported revenues of $355 million in 2000, is the final stage of a corporate restructuring which began in October. At that time, executives at publicly traded Millipore Corp. announced they were splitting their business into two independent operations. One (Millipore) would stick to biosciences. The other, dubbed Millipore MicroElectronics, would focus on liquid and gas delivery systems for the semiconductor industry. In April, management at Millipore MicroElectronics announced they were renaming the company Mykrolis. Mykrolis executives plan to sell seven million shares in the offering, priced somewhere between $15 – $17 each. These days, a $112 million IPO is nothing to sneeze at.

Venture capitalists aren’t faring much better than underwriters. The earnings falloff in technology stocks has hit venture investors particularly hard. According to a recent report by Venture Economics, the VC industry suffered a loss in both the first and second quarters of the year. That’s the first time venture capital investors have ever taken a loss over a 12-month period. Despite the hard times for VCs, Inflow Inc., managed to close a $35 million fourth round of venture funding last week. The company, which was founded by two former US Air Force officers, operates Internet data centers and managed hosting services.

Given the lousy equity scene, it’s not surprising that some corporate cash-raisers are taking a long hard look at debt financings. Of course, any CFO who plans to borrow money no doubt has August 21 circled on the calendar. That’s the day some observers believe Federal Reserve Board Chairman Alan Greenspan will once again step in and lower interest rates. The Fed chairman has done such stepping six times so far this year, lowering rates a whopping 2.75 percent. Some economists speculate Greenspan will cut rates another 25 basis points, while a few are predicting a full half-point knock-off. Others say the chairman will simply ride out the recent spate of bad economic news — news which includes a drop in the Chicago Purchasing Managers index in July.

Then again, some investors seem pretty convinced the Fed is going to intervene again. As of last Friday, the price of fed funds futures factored in a 92 percent chance of a 25-basis point reduction on Aug. 21. Your move.