In Both Price and Volume, IPOs End 1999 With a Bang

The last year of the century is another record one for initial public stock offerings, and by no small margin. This year saw the largest U.S. IPOs, the biggest first-day price gains and the most deal volume.

As of last Monday, 541 IPOs were sold nationwide in ‘99, raising a record $69.1 billion in capital, nearly double the $36.8 billion raised last year in 374 IPOs, according to Thomson Financial/Securities Data, a New Jersey research firm.

The amount of money raised by California companies in new offerings jumped more than 400% from the year before, to $17.3 billion.

Yet along with some huge IPO winners, there have been many flops. As of last week, 23% of the IPOs sold nationwide in 1999 were trading below their offering price, according to Securities Data. Wondering how fleeting IPO success can be? Of the offerings sold in 1998, more than half now are trading below their IPO price.

But this has been the year of the mega-hit. Nationwide, the average IPO rose in price 67% on the first day of trading, and the average gain through Dec. 20 was 170% from the offer price.

IPOs from companies based in California, with its high concentration of tech companies, fared even better, with an average first-day gain of 98% and average total advance of 262%.

And the state has had fewer disasters than the rest of the country, proportionally. Only 14% of the 171 IPOs from California companies in 1999 are trading below their offer price, Securities Data found.

“By any way you look at it, this was a blockbuster year,” said Tom Taulli, a Net stock analyst with Internet.com, a Westport, Conn., data firm. “I’ve never seen anything like this. 1/8Share 3/8 liquidity is not a problem, demand is not a problem--and this only bodes well for next year.”

Three primary trends emerged in 1999’s IPO market: This was the year for companies involved with a once-little-known computer operating system called Linux; the year for companies focusing on the lucrative business-to-business Internet sector; and the year of the mammoth offering. These trends are expected to continue in 2000.

Blockbuster Deals: Shattering Records

Three of the five largest IPOs in U.S. history were sold in 1999, topped by United Parcel Service’s $4.3-billion deal, priced at $50 a share through Morgan Stanley Dean Witter. The two other blockbusters were Goldman Sachs, which raised nearly $3 billion, and cable giant Charter Communications Inc., which raised $2.75 billion.

California had its share of large deals, including a nearly $2-billion IPO from San Francisco-based Genentech and a $1.8-billion deal from Palo Alto-based Agilent Technologies.

“The perception used to be that the market would not be able to handle that amount of money,” Taulli said. “But in a very short period, we’ve seen a transformation in the capital system.”

A slew of large IPOs is expected in 2000, analysts said. More companies that have assets they believe are not properly reflected in their stock price will begin spinning off those assets next year, with some analysts expecting AT&T;’s wireless-unit IPO to be the first domestic $10-billion offering.

“I think $500-million and $1-billion IPOs will begin to be routine next year,” Taulli said.

Linux: ‘Emotional Assault on Microsoft’

This was the year that many on Wall Street learned how to pronounce the word Linux (“lie-nix”) . . . and some actually understood what it means. Companies that specialized in the free computer operating system, seen by some as a viable alternative to Microsoft’s Windows, had several of the best-performing IPOs.

Red Hat, the Durham, N.C.-based maker of Linux software, rose more than 1,500% from its offer price. VA Linux Systems, the Sunnyvale-based maker of Linux hardware, soared more than eightfold in its first trading day, an all-time record. The stock has since cooled and is now up about 560%.

Many investors saw Linux as a way to invest in the possibility of Microsoft losing market share with its dominant system.

“This Linux craze is all about an emotional assault on Microsoft--until now there has been no way to play David to their Goliath,” said Gail Bronson, a Silicon Valley start-up strategist and senior analyst for IPO Monitor, a Calabasas-based data service. “There is an adrenaline rush the Linux crowd is getting from this, but I think we can go overboard here on dissing Mr. Softie,” she added, referring to Microsoft.

Still, Bronson believes Linux has a strong place in the market. She and other analysts predict that the craze will continue next year, and several Linux-themed IPOs are already on the schedule.

Business to Business: It’s Hot Commerce

Companies that help other businesses do business on the Internet proved to be one of the hottest areas for IPOs.

One of the most successful “B2B” IPOs came from Walnut Creek-based Commerce One, which links buyers and suppliers in real-time trading communities. It went public in July at $21 a share and now trades at nearly $600.

A study released last week from Boston Consulting Group found that as much as one-fourth of all U.S. business-to-business purchasing will be done online by 2003. The report estimates that B2B e-commerce will grow by about 33% each year, reaching $2.8 trillion by 2003.

“This is the second coming of the industrial revolution,” David Menlow, president of IPO Financial Network of New Jersey, said with the typical understatement of an IPO analyst. “The business-to-business area on the Internet takes all the fixed costs associated with doing business and obliterates them.”

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Incredible Public Offerings

This year shattered records for IPO performance. Nineteen of the 541 offerings were up more than 1,000% as of Wednesday, and 13 of those were from California companies, according to Thomson Financial/Securities Data. Here are the 10 best-performing IPOs nationwide (California companies are in bold):

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Ticker IPO IPO Wed. Pct. Rank Company symbol date price price change 1 Internet Capital Group ICGE 8/4 $6.00 $192.50 +3,108% 2 Commerce One CMRC 7/1 21.00 550.00 +2,519 3 VerticalNet VERT 2/10 8.00 139.25 +1,641 4 Purchasepro.com PPRO 9/13 8.00 138.25 +1,628 5 Red Hat RHAT 8/11 14.00 236.88 +1,592 6 Vignette VIGN 2/18 9.50 153.63 +1,517 7 Brocade Communications BRCD 5/24 9.50 151.13 +1,491 8 E.piphany EPNY 9/21 16.00 250.06 +1,463 9 Phone.com PHCM 6/10 8.00 124.00 +1,450 10 Liberate Technology LBRT 7/27 16.00 244.00 +1,425

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Source: Thomson Financial/Securities Data.

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Times wire services were used in compiling this report. Remember that initial public offerings are highly speculative and not suitable for all investors. Debora Vrana covers investment banking and the securities industry for The Times. She can be reached at debora.vrana@latimes.com or at Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.