Strong Initial Reaction


Fears of a bear market may have kept the lid on first-time stock offerings early this year, but suddenly that’s changed.

Investors have shown a renewed appetite for initial public offerings, or IPOs, in recent weeks, as the market indexes hit new records and fears of interest rate hikes begin to vanish, at least for the near term. So companies are again eager to offer new shares.

Last week was the hottest for IPOs this year. On Tuesday, the year’s biggest IPO, a $997.5-million deal for Santa Fe International Corp., a Dallas oil well drilling company, was successfully sold. On Wednesday, the second-largest IPO of the year, a $767-million offering for Polo Ralph Lauren Corp. was sold with very strong investor demand, rising 21% to $31.50 a share in its first day of trading.


“We’ve definitely seen a pickup in activity--a stark contrast to the rest of 1997,” said Ryan Jacob, director of research for IPO Value Monitor, a New York research firm.

As of early June, $13.5 billion in 232 IPO deals were sold, compared with $23.4 billion in 359 deals priced during the same time last year, according to Securities Data Corp., a data firm in New Jersey.

Though the market for IPOs is beginning to improve, it is nowhere near the pace of 1996, which had the largest number of IPOs ever sold. Analysts said, however, that the market began improving a few weeks ago with a $33-million IPO by Rambus Inc., a Mountain View, Calif.-based designer of a technology that speeds communication among computer chips.

In its first day, Rambus stock rose to $30.25 a share from an initial price of $12, mostly on investor expectations that its contract with chip maker Intel Corp. will mean future profits.

“Rambus, I think, was the turning point in this market,” Jacob said. “It showed investors were willing to take risks on high tech again.”

Investors, he said, must still be careful when considering an IPO. Many stocks will see strong openings only to have the prices fall days later, when much of the hype dies down. Besides, it remains difficult for individual investors to get the initial offering; most must wait until it is sold by institutions and large traders, who buy at the offer price.


In the excitement of the first day, many stocks rise quickly and then end up near the offer price. But sometimes the market will overreact, and a new stock will gyrate for a few days before settling down.

So, depending on timing, IPOs can mean short-term profits.

“There are some great bargains in the IPO market now,” said David Menlow, president of IPO Financial Network Corp., who predicted that the demand for first-time stocks will continue to pick up steam through the end of the year.

Menlow’s favorite picks from the IPOs expected to be priced this week: San Francisco-based Genesys Telecommunications Laboratories Inc., which expects to complete a $46-million offering to expand its software applications business through Goldman, Sachs & Co. Menlow also recommends RWD Technologies Inc., a Columbus, Md., technology company that deals with workplace productivity, and ArmFinancial Group Inc., a Louisville, Ky., company that designs products for the savings and retirement markets.

As many as 70 IPO deals nationwide are scheduled to be sold by the end of June, raising $3.8 billion, according to Securities Data. Initial public offerings are also picking up worldwide. On Monday, Electricidade de Portugal, the Portuguese utility, priced a $2.3-billion IPO, selling 30% of the government-owned utility to the public.

California companies helped drive the booming IPO market last year, but companies from the Golden State have not been as strong a force this year. Still, about 15 California companies are planning to sell IPOs during the last half of June for a total of $335 million, according to CommScan, a New York data firm.

Last Thursday, Santa Barbara-based Star Telecommunications Inc. saw its stock rise 30% in its first day of trading to $12 a share, exceeding analysts’ predictions for the long-distance phone company. Hambrecht & Quist, a San Francisco investment bank, underwrote the $36-million offering, which will be used to pay short-term debt and expand.


Some of the more high-profile California deals coming include an $18-million deal by Laser Power Corp., a San Diego laser products maker, and a $30-million offering by Aurora Biosciences Corp., a La Jolla drug discovery system designer.

This week, specialized software developer Aspec Technology Inc. of Sunnyvale is scheduled to go public with a $36-million offering.

“This is a discriminating market--it’s not one of those markets where you can throw anything out there,” said C. Daniel Ewell, the head of investment banking for Morgan Stanley & Co. in Los Angeles, which helped underwrite the Rambus and Polo Ralph Lauren deals, among others.

Times staff writer Debora Vrana can be reached at


IPOs Pick Up Speed

After a cooling trend this spring, the dollar value of initial public offerings in the U.S. has grown in the last few weeks.

Weekly IPO Dollar Volume

Week ended June 13: 2,271.4

Number of IPO Deals:

Week ended June 13: 14


Source: CommScan