State’s IPO Market Follows Web Traffic to Record

Companies promising to make the Internet better, faster and more profitable helped fuel California’s initial public offering market to a record third quarter, and the pace shows no sign of slowing.

IPO volume reached $4.9 billion, according to Bowne of Los Angeles, a financial printing company that tracks the capital-raising market. The tally marks a more than fivefold increase over the same period in 1998 and a level not approached in the 10 years Bowne has tracked the market. The traditional summer slowdown was little more than a blip this year.

Overall capital raising--including secondary and preferred stock offerings and debt deals as well as IPOs--reached a record $19.6 billion, a more than threefold jump over the 1998 level. Northern California capital raising soared 451% to $13.5 billion, while Southern California deals (excluding San Diego) rose 60% to $4.6 billion.

An annotated glance at the trends, and a peek at the new quarter:

The Biggest Deals: Though Internet IPOs got most of the attention, the largest new offering by dollar volume came from a drug company. South San Francisco biotech pioneer Genentech Inc. raised $1.9 billion in its July IPO, by far the quarter’s biggest California deal of any kind, Bowne reported. The stock gained 51% from the offer price, though its climb looks modest next to those of some of the Net companies investors bid skyward.

The biggest non-IPO deals were from San Diego telecom power Qualcomm Inc. and Milpitas circuit board maker Solectron Corp., which raised a little over $1 billion apiece in secondary offerings. Los Angeles consumer lender Transamerica Finance Corp. snagged $1 billion in a debt deal.

Blasting Off: Investors increasingly are plowing their money into companies whose software and products speed Web traffic and help businesses improve their online operations by managing e-mail, tracking customer habits or expanding customer service. Computer networking and wireless communications are also hot areas, as shown by third-quarter “aftermarket” performance.

The quarter’s biggest IPO gainers--Foundry Networks Inc. of Sunnyvale, which rose 404% from its offering price through Thursday; Alteon WebSystems Inc. of San Jose, up 395%; Commerce One Inc. of Walnut Creek, up 365%; Netro Corp. of San Jose, up 242%; and Clarent Corp. of Redwood City, up 240%--fit those themes. Foundry makes Internet equipment, Netro provides wireless communications services to businesses, and the three others make Net software.

Foundry’s performance almost deserves an asterisk because its IPO came out three trading days before the end of the quarter. As usual, the bulk of the gains for the trendiest IPOs came in first-day trading, meaning venture capitalists and large investors got the big bucks while little investors mostly got left out. Analysts sometimes recommend that long-term investors wait at least a few months before buying new issues, which often back away from early run-ups.

Southern Lights: The best-performing Southland IPO was Quest Software Inc. of Newport Beach, up 232% from its IPO price to the end of the quarter. Other Southern California winners included real estate site Homestore.com Inc. of Thousand Oaks, up 108%, and Internet service provider NetZero Inc. of Westlake Village, up 63%.

But three of the state’s four worst performers also were Southern California companies--JFax.com Inc. of Los Angeles, down 48%; Continuus Software of Irvine, down 41%; and engineering-consulting firm Keith Cos. of Costa Mesa, down 39%.

Credit Where Credit’s Due: Several of the premier offerings--including Commerce One, Clarent, E.piphany Inc. of San Mateo, up 205% and Gadzoox Networks Inc. of San Jose, up 157%--were lead-managed by underwriter Credit Suisse First Boston. Its 10 issues averaged a gain of 163%, and eight of those IPOs were among the state’s 20 best performers, according to Thomson Financial Securities Data.

Lehman Bros., which brought out three issues, had the highest average gain, at 171%. Lehman’s stars were Liquid Audio Inc. of Redwood City, up 147%, and Alteon WebSystems.

Morgan Stanley Dean Witter handled standouts Agile Software Inc. of San Jose, up 205%, and Berkeley-based Ask Jeeves Inc., up 146%. Its three issues rose an average of 140%.

Eyeing the Pipeline: Two companies with links to--what else?--the Internet are among those analysts are eagerly awaiting.

Steve Lacey, managing editor of IPO Reporter, expects Webvan Group Inc. of Foster City and Silicon Image Inc. of Cupertino to do well when they come out early in the fourth quarter, perhaps as soon as this week.

Online grocer Webvan offers same-day delivery of fresh foods, including live lobsters. The company, whose heavyweight backers include the U.S. arm of Japanese Web conglomerate Softbank, plans to build 26 highly automated warehouses over the next three years, according to Bloomberg News.

“This company is a category killer,” Lacey said, suggesting that Webvan, with its name recognition and blue-chip backing, has a huge edge on rivals, such as Peapod Inc.

Semiconductor giant Intel Corp. is among the backers of Silicon Image, which aims to capitalize on the expected shift from analog to digital TV as the industry’s standard.

Silicon Image’s high-speed technology enables computer and TV screens to display sharp images. “The marriage of our unofficial national pastime--television--with the Internet is going to be a key theme for the market,” Lacey said, noting last week’s strong debut of Sunnyvale-based interactive TV developer TiVo Inc.

An October Surprise?: According to IPO Financial Network, 31 California IPOs and secondary stock offerings are tentatively scheduled for this month, a healthy but hardly unprecedented or unmanageable number. IPO Financial notes, however, that about 100 such deals are in the nationwide pipeline without scheduled dates--raising the possibility of a glut if deal makers rush to cash in on this hot market.

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Times staff writer Josh Friedman can be reached at josh.friedman@latimes.com.

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IPO Major Movers

Foundry Networks was the state’s best-performing new offering in the third quarter, and JFax.com was the biggest decliner.

5 Biggest Gainers

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Ticker Thurs. % chg. Company Symbol close from offer Underwriter Foundry Networks FDRY $126.00 +404% DB Alex. Brown Alteon Websystems ATON 94.00 +395 Lehman Bros. Commerce One CMRC 97.69 +365 CS First Boston Netro NTRO 27.38 +242 Merrill Lynch Clarent CLRN 50.94 +240 CS First Boston

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5 Worst Performers

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Ticker Thurs. % chg. Company Symbol close from offer Underwriter JFax.com JFAX 4.97 -48 Donaldson Lufkin Quokka Sports QKKA 6.94 -42 Merrill Lynch Continuus Software CNSW 4.75 -41 US Bancorp PJ Keith TKCI 5.50 -39 Wedbush Morgan Talk City TCTY 8.50 -29 Lehman Bros.

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Sources: Thomson Financial Securities Data, IPO Financial Network