Initial public offerings are occurring at rate that hasn’t been seen since the robust days of 1999 and 2000, according to BusinessWeek Online.
Through April 17th of this year, there were 55 IPOs on U.S. exchanges, an 8% increase from the year-earlier period, according to Renaissance Capital. This year alone, 78 IPOs have been filed with regulators, a 13% rise over last year.
Nonetheless, the IPO business has a long way to go before it reaches the chaotic pace of seven years ago. Last year, there were 198 IPOs in the U.S. totaling about $43 billion. By comparison, in 1999, 486 IPOs hit the market and generated $93 billion in proceeds.
Linda Killian, portfolio manager of the IPO Plus Aftermarket Fund, observes that IPOs are in a slow recovery from the depths of the 2001-2003 bear market. She believes it will take several years for the IPO market to return to a normal rate of annual issuance. “We can return to a healthy IPO market when investors feel they will be rewarded for buying new companies,” she said.
In 1999 and 2000 IPOs were mostly of dot-com and human-genome companies, of which a vast majority have shut down. Over the past 12 months, financials have accounted for 18.8% of IPOs, healthcare companies 17.8%, energy 16.3% and technology 15.8%.
“The fact that financial-services companies accounted for neatly 19% of IPO activity in the past 12 months isn’t a surprise, considering that this sector accounts for more than 20% of the total market,” said Cathy Seifert, head of financial institutions equity research at Standard & Poor’s.
In the future, Killian thinks that more private equity issuers will become involved in IPOs. “Buyouts have increased in frequency in 2006, and since the private-to-public turnaround is increasingly short, we expect to see many more of these leveraged offerings, she said.
“As far as the larger environment is concerned, the economic and political landscape is largely benign. A climate of relatively low interest rates and slowing gross domestic product bodes well for IPOs,” Killian said.
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