Wall Street Rally Fuels Hope for New IPOs
The stock rally could be on the brink of reviving one of the bear market’s biggest victims: initial public offerings.
Hopes for an IPO pickup are being fueled by Wall Street’s gains of the last three months, recent filings for several tech- oriented deals and growing speculation about a potential blockbuster offering by Internet search engine Google Inc.
Although Mountain View, Calif.-based Google says it has no plans to go public, that hasn’t quieted rumors about a possible offering by one of the marquee names among private Internet companies -- a deal that some say could give IPO investors a much-needed dash of excitement.
“You need a big one, a deal that captivates everyone, to get things going again,” said Tom Taulli, corporate finance instructor at USC’s Marshall School of Business. “Google is the one.”
He noted that historically, IPO flurries have been touched off by high-profile offerings such as Apple Computer Inc. in 1980, Microsoft Corp. in 1986 and Netscape Communications at the start of the Internet craze in 1995.
Even without Google, however, today’s IPO market could be primed for improvement if the stock rally remains intact, analysts say.
With the Nasdaq composite index up 28% from its prewar low, tech firms such as Livermore, Calif.-based chip equipment maker FormFactor Inc. and Palo Alto-based business software maker Crystal Decisions Inc. are among the names in the IPO pipeline, along with such companies as shoemaker Converse Inc. of North Andover, Mass.
“The environment for IPOs looks better,” Taulli said, noting that the technology-heavy Nas- daq hit a one-year high last week and that the most recent offering, Nashville-based payment processor IPayment Holdings Inc., has fared well in the so-called aftermarket.
Shares of IPayment, which slid $1.57 to close at $22.22 in Friday trading on Nasdaq, are up 39% from their May 3 offering price despite a controversy over the role of a Bear Stearns analyst in touting the stock.
FormFactor’s $55-million offering, which lead manager Morgan Stanley could bring out Tuesday or Wednesday, might be the next deal to test the IPO waters, said Paul Bard, an analyst at Renaissance Capital’s IPO Plus mutual fund in Greenwich, Conn. It would be the first IPO from the semiconductor sector since 2001.
“FormFactor is a big step for the IPO market,” Bard said. “If the company has a successful debut, the IPO market is going to build with each deal, and institutional investors will show support in the aftermarket.”
A $306-million offering by Las Vegas-based radio chain Citadel Broadcasting Co. could be the next to come out, Bard said, perhaps closely followed by Bermuda-based reinsurer Axis Capital Holdings Ltd. and Converse, maker of Chuck Taylor sneakers.
In addition to Crystal Decisions, tech deals in the pipeline for this year include wireless remote access provider IPass Inc. of Redwood City, Calif., and NetGear Inc. of Santa Clara, Calif., which makes networking products for homes and small businesses.
Although analysts expect the IPO market to improve, they don’t anticipate anything like a return to the heady days of the late-1990s bull market. Back then, there was no shortage of stock offerings, but the marketplace was clamoring so loudly for tech IPOs that big first-day run-ups were the norm for the new stocks.
Still, any improvement would be welcome. This year, only five companies have gone public in the United States, raising $1.1 billion, Renaissance says. By contrast, at the same point in 2000, 406 companies had gone public, raising $97 billion; even last year at this point, 37 companies had raised $13 billion.
Google, which answers more than 200 million online search requests a day, was founded in 1998 by Sergey Brin and Larry Page, who met as Stanford grad students. The IPO buzz began the next year when two high-profile Silicon Valley venture capitalists bought stakes, and recently it has hit fever pitch, with various publications and Web sites chiming in. (CBSmarketwatch.com even launched a message board devoted to estimating Google’s hypothetical value in the stock market.)
Google is a bit of a throwback to the heyday of Internet companies. Among the top 10 reasons to work there, according to the company’s Web site, are massage therapy and free gourmet lunches -- along with “pre-IPO stock options” (No. 7), of course.
The company, whose payroll has risen from fewer than 200 employees when Chief Executive Eric Schmidt joined in March 2001 to more than 800 today, has been profitable for about two years, said spokeswoman Cindy McCaffrey, though she declined to discuss company revenue.
She also flatly denies the IPO rumors.
“We don’t have any plans for an IPO at this time,” McCaffrey said. “We’re focusing on the business.”
One of Google’s original “angel” investors, however, said an IPO might make sense if the stock market stayed strong.
“They’ve been waiting for the market to improve, and I would say it has,” said Andreas Bechtolsheim, co-founder of Sun Microsystems Inc. and now a vice president of Cisco Systems Inc. “I don’t have any inside knowledge,” said Bechtolsheim, who is not on Google’s board, “but certainly this would not be a bad time to consider the IPO filing.”
Regardless, some analysts say a series of smaller deals would do more to restore confidence in the IPO market than one mega-deal such as Google.
“Any single large, successful transaction like Google is going to get a lot of press,” said Don Williams, head of Ernst & Young’s Southern California venture advisory group. “But at the end of the day, it would only be one IPO.”
