Midyear IPO Numbers Gloomy, but There May Be Silver Lining
It’s a new millennium in the IPO market, all right: This year’s first half has been one of the worst performance periods for initial public offerings in years, with new-stock issues nationwide dropping 15% on average from their first-day closing prices through Friday.
That compares with an average gain of 41% for all new issues during the same time last year, according to CommScan, a New York data service.
IPOs from California-based companies have fared only slightly better in the first half, with an average price drop of about 10% so far.
Twenty-one of the 201 companies that have gone public this year are now trading in “penny stock” territory of less than $5 a share, and 85 IPOs are trading below their offering price, according to CommScan.
The IPO market has seen big slumps before, such as in the late summer of 1998, when there were no new offerings for more than a month. But IPO analysts say market choppiness this spring, punctuated by April’s plunge in the Nasdaq composite index, has severely hampered first-time stock deals for fast-growing companies in a correction that may drag on for quite awhile.
Despite some recent successes in the IPO market, investors have clearly grown reticent about investing in companies with no profit and no clear or proven business plans--particularly companies with “dot-com” attached to their names.
How thin has investors’ appetite become? A total of 116 IPOs were withdrawn or postponed in the first half, nearly double the 63 deals pulled in 1999’s first half.
Even so, more money has been raised via IPOs this year than during the same period in 1999, CommScan found, as the average deal size is larger and the number of deals is up slightly.
A total of $41 billion has been raised in 201 IPOs so far this year--although 126 of those offerings were completed in the first quarter, when $20.3 billion was raised. In last year’s first half, by comparison, $24.1 billion was raised in 188 IPOs, including $9 billion from 69 first-quarter deals.
Lousy performers among IPOs priced this year include Santa Clara, Calif.-based Neoforma.com (ticker symbol: NEOF), down 85% from its first-day close; Aliso Viejo-based Buy.com (BUYX), down 83%; and VantageMed (VMDC), down 80%.
“It’s just been horrible. The dot-com IPOs are dead for now,” said Ben Holmes, president of IpoPros.com in Boulder, Colo. “So many companies saw the IPO as [their] product. That’s the kind of attitude that brought this market down.”
Some say the downturn could prove to be healthy in the long run.
The IPO market was overheated and needed this kind of slowdown, said David Menlow, president of IPO Financial Network, a New Jersey data firm.
“This is a self-cleaning process that has transformed the IPO market from a seller’s market to a buyer’s market,” he said.
New offerings bucking the downtrend include Fremont, Calif.-based Centillium Communications (CTLM), up 181% from its first-day close, and Sunnyvale, Calif.-based Stanford Microdevices (SMDI), up 149%. Of the 10 best performers nationwide, half were from California companies, according to CommScan.
And Friday, Moorpark-based Accelerated Networks (ACCL) more than tripled in price, closing at $47.88 on Nasdaq.
Handspring (HAND), the Menlo Park, Calif.-based hand-held computer company founded by the creators of rival Palm (PALM), gave the IPO market a confidence boost earlier in the week. The stock rose nearly 35% from the $20 offer price in its Nasdaq debut Wednesday, though Friday it slid $2.44 to $22.88.
Despite these positive signs, some analysts say a meaningful recovery for the market may take time.
As Menlow put it, “This is a slow crawl from the basement.”
Analysts are cautious, of course, about pinning the prospects for a market recovery on any one upcoming deal, but those they are closely watching include:
* Transoceanic fiber-cable company TyCom, a division of Bermuda-based Tyco International. The spin-off is expected to raise $1 billion through underwriter Goldman Sachs. “It’s profitable, they’ve got monster revenues, and they’ve laid more cable than anyone on the planet,” Holmes said.
* AltaVista, the Silicon Valley Internet portal that joined a slew of tech firms in postponing its IPO indefinitely, citing market conditions. Analysts say that if the high-profile company shows up on the calendar again, that could be taken as a signal of a healthier market.
* Garage.com, the profitable, Palo Alto-based Internet company incubator started by former Apple Computer executive Guy Kawasaki. Garage.com has filed to raise $68.4 million through underwriter Goldman Sachs.
Some analysts expect the IPO market to bounce back in full force this fall. Menlow, for example, is betting on a strong recovery starting the week of Sept. 18. His logic: Wall Street will have two weeks to build up steam after the Labor Day holiday.
“That’s when [deal makers] start to get serious about end-of-the-year things, like bonuses,” Menlow said. “That’s what really drives the market.”
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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, who covers investment banking and the securities industry for The Times, can be reached at debora.vrana@latimes.com or Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012.
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Tepid Reception for Most IPOs
IPO performance during the first half of 2000 has been among the poorest on record, with the average stock dropping 15% from its first-day closing price through Friday. Initial public offerings from California-based companies dropped 10%, by comparison.
The Best IPOs of the First Half of 2000
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The Worst IPOs of the First Half of 2000
IG Tepid Reception for Most IPOs / Los Angeles Times
