IPOs Provide Firms With Ample Funds
Friday, November 23, 2007
2007 is emerging as a banner year for initial public offerings despite the mushrooming trouble in the credit markets.
Not since 2000, when the Internet bubble was at its most inflated, has there been so many IPO deals or as much IPO money.
And initial offering activity was the most intense precisely when the credit mess was pulling down the broader stock markets this year, according to data from several research firms.
The Dow Jones industrial average has dropped more than 1,000 points this month, a decline that has occurred in only three other months in history, said Richard J. Peterson, director of capital markets at Thomson Financial. And yet the IPO market is having one of its busiest months of the year. IPOs also picked up in June and July, when the first signs of the credit crisis emerged.
"The IPO market has been pretty immune collectively to credit conditions," Peterson said.
The white-hot IPO market and the stone-cold credit markets may not be coincidental.
David Menlow, president of the independent research firm IPO Financial Network, said the difficulty of borrowing money is pushing some firms to seek funds through IPOs. "The credit crunch happens to be . . . removed from the IPO market," Menlow said.
But Jody Drulard, managing director at Dealogic, said the firms going IPO these days "do not have a lot of debt and are generally less affected by the credit crunch."
The increase in IPO activity this month, Drulard said, was largely from financial companies who "think there is going to be a lot of carnage, so they are raising war chests to buy bargains in the future."
Unlike in the late 1990s, now firms are launching onto the stock markets from virtually every sector of the economy, not just technology. Companies in the financial, energy and health-care sectors in particular have done well through IPOs.
There is also a distinctly foreign flavor to the IPO market this year, a reflection of the flourishing global economy. Six of the 10 best-performing IPOs this year have been from foreign-based firms, including three from China. The best-performing IPO of the year is from JA Solar, a Chinese firm that sells solar-power equipment. Its shares have soared about 260 percent since listing on the Nasdaq in early February.
Also doing well are VMware, a data storage company in Palo Alto, Calif., whose shares have soared 184 percent; MercadoLibre, an online auction site for South America, up 142 percent; and Lululemon Athletica, a Canadian retailer, the shares of which rose 100 percent before declining a bit in recent weeks.
Firms' shares rose an average of 15 percent after they were priced this year, but there have been some high-profile busts. Among them: Virgin Mobile, which is trading about 40 percent below its IPO price; and private-equity firm Blackstone Group, which raised a $4 billion through its IPO in June, but its stock price has since fallen 33 percent.
Several Washington area firms that had IPOs this year are also faring poorly. The shares of ICx Technologies, a homeland security equipment supplier in the District; DuPont Fabros, a data management company in the District; and USEC, a nuclear power plant supplier in Bethesda, are all trading at less than their IPO prices.