This Is No Time to Party Like It's 1999

Lord knows the stock market isn't acting too pretty these days -- but if you look at some of the latest initial public stock offerings and filings by some IPO candidates, you'd think that the happy days of 1999 were on their way back. It's not clear whether the froth in the IPO market marks the start of a whole new wave of offerings, as Googlemaniacs want to believe, or they're last-minute attempts by insiders to get public investors' money before the tide goes out. But either way, they're well worth looking at.

Let's start with Greenhill & Co., an investment banking shop founded in 1996 by Robert Greenhill, one of Wall Street's legendary mergers-and-acquisitions guys. It went public last week at $17.50 a share, placing an astounding value of $525 million on the company, whose major business is -- duh! -- advising companies on mergers and acquisitions. (The firm has a small "private equity" business, but it doesn't amount to much.) At Monday's close, the company was valued at more than $570 million, which seems awfully high to me. Anyone who thinks that a merger boutique is worth that kind of money is a heck of an optimist.

This brings us to two other examples of IPO excess that haven't managed to sell stock yet -- Google, of course, and Morningstar, the mutual fund analysis house that filed its going-public papers last week.

The only thing to say about Google, whose founders have resisted going public, is that the venture capitalists who have a big stake in the company obviously think this is the time to sell. The conventional journalistic wisdom is that their goal is to set off a new wave of high-tech IPOs. But I suspect the venture-capital firms, which have seen down cycles before, are playing defense rather than offense. In other words, they want to cash in their winnings (and to get their share of their funds' profits) before the IPO market tanks.

And then there's Morningstar -- which, like Google, seems to have no pressing financial need to go public. Morningstar's financials, filed with the Securities and Exchange Commission last week, show the firm has begun to generate serious cash profits from its operations after years of losses.

It also shows that Morningstar -- like other privately held firms with outside investors and with employees holding stock options -- has managed, quite nicely, to run a private market for its shares.

There's no indication in the documents what price Morningstar, which has teed up public offerings several times but never sold stock, intends to get. But there are hints. A year ago, Morningstar valued its shares at $8.57 for its internal market -- and the prices of mid-cap companies like it were up around 50 percent a while back. That puts an implied value of $13 or $14 on its shares. So why go public now?

The answer, I think, lies in the price that Morningstar's biggest outside investor, Softbank, paid for its shares. Softbank, a Japanese firm that was a big shooter during the bubble, paid $11.95 a share for $91 million of Morningstar stock in July 1999 -- some 40 percent higher than Morningstar valued its shares a year ago. This is probably the first time since the stock bubble burst that Softbank could dream of getting more than $11.95 for its Morningstar holdings. This makes it a good time to sell -- if the market doesn't fall apart before the deal is completed. And that's a big if.

I'd like to tell you that 1999 is back, and that it's time to break out the champagne and silly hats, and just party. But I can't. I think the IPO wave has crested and the tide is going out. And it will keep on going, no matter what Google does.

Sloan is Newsweek's Wall Street editor. His e-mail address is sloan@panix.com.