Capital Markets

Will the IPO Market Reopen this Week?

At least three companies have slated initial public offerings. If they're successful, they would be the first launched in at least 12 weeks.
Stephen TaubFebruary 9, 2009

Is it safe for a company to go public again?

We will find out this week, as at least three companies have scheduled initial public offerings. If they are successful, they would be the first IPOs in at least 12 weeks, according to The Wall Street Journal. In fact, only one company has gone public since August, according to Reuters.

Many other companies, as well as Wall Street, are sure to be watching closely. Whether or not one or more of these three companies do in fact complete their offerings could also go a long way toward reopening the IPO market in general.

In a newly published report, Ernst & Young points out that the number of companies remaining in the IPO pipeline dropped to 57 by the end of the fourth quarter, a 30 percent decrease from the end of the third quarter.

In the fourth quarter, 16 companies withdrew or postponed their IPOs and one went effective.  E&Y added that another 14 companies were removed from its IPO report because they sat in the pipeline for more than a year.  

Of course, if the overall stock market sinks over the next two days and heavy volatility returns, all bets could be off for the IPO wannabes.  

The three companies that hope to go public later this week include Mead Johnson Nutrition Co., a maker of baby-formula which is being carved out of Bristol-Myers Squibb Co.; security products company O’Gara Group Inc.; and Changing World Technologies Inc., which sells renewable diesel fuel and organic fertilizers.

Most experts believe Mead Johnson has the best prospects among the three of being successfully completed. This is because the company, which is hoping to raise $562.5 million, is well known as is its baby formula product, Enfamil. It reported $2.1 billion in revenues in the first nine months of 2008, up 14 percent. It also has the backing of a huge drug company.

Also, carve-outs-an IPO of a slice of a larger company–have a history of working out. Reuters points out that some of the biggest IPOs of all time have been carve-outs, including Philip Morris Cos’ $8.68 billion spin-off of Kraft Foods in 2001.

Bristol, in fact, spun off its orthopedic device marker Zimmer Holdings Inc. in 2001.

O’Gara Group, which hopes to raise as much as $152 million, makes a wide variety of products used by the military, including transparent armor for vehicles and night-vision equipment.

Changing World is deemed to be the most speculative of the three companies planning to go public this week.

Reuters points out that the company only began commercial sales in 2007. For the first nine months of 2008, it racked up revenues of $863 million, up 78 percent from the prior year. It also reported an $18.8 million loss for the nine-month period, up from nearly $15 million the prior year.

It is hoping to raise between $31 million and $42 million.

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