The Return Of IPOs IPOs Are Back--For Now
by Susan Kitchens
Published in Forbes.com
March 29, 2004

New York - Here come the IPOs again.

After a three-year drought, initial public offerings are creeping back into the market. Through the middle of March, 33 companies listed their shares on major U.S. exchanges, up from only five companies over the same period in 2003.

Last year, the market saw only 83 new listings raising $16 billion--the slowest full year for IPOs since the 1970s, according to Thomson Financial.

Then IPO volume began picking up last summer, as the markets signaled a renewed interest in equities. The Nasdaq Composite jumped 50% in 2003, while the S&P 500 stock index climbed 26%. Capital inflows to mutual funds topped $80 billion, putting fund managers on the lookout for new investments--and, ultimately, new companies in which to invest. Tack that on to the encouraging 4% economic growth in last year's fourth quarter, and you've got a good environment for funding new companies.

But don't look for a repeat of the late-'90s frenzy. In 1999 alone, for example, 486 companies went public. Marshall Sonenshine, managing partner of Sonenshine Pastor, a New York investment banking advisory firm, says we're currently in an IPO "renaissance," not a boom.

Sonenshine says the current IPO calendar is more diverse--both in terms of sector and geographical representation--and listing companies are of higher quality today than they were five years ago. Yet the deals are also smaller: This year, only two have topped the $1 billion mark. The year's largest IPO so far--Shanghai-based Semiconductor Manufacturing International (NYSE:SMI)--raised $1.8 billion on March 11 but is down 15.5% since its listing on March 17. In second place is Assurant (NYSE: AIZ - news - people ): The insurance company and Fortis spinoff was worth $1.76 billion; it is up 8.2% since its Feb. 4 listing.

Many market watchers agree: Forget the frenzy that was. Don't expect the free-for-all craze that ushered in the last IPO boom. Even so, some of the most anticipated offerings this year are online businesses, such as retail site Shopping.com, electronic stock exchange Archipelago and jewelry seller Blue Nile. One Internet-only commercial bank, The Bancorp Bank (NASDAQ:TBBK), is up 41% from its $12.50 offering price.

"In the late '90s, there was a mania," says Tom Taulli, a finance professor at The University of Southern California. "That's not the case today. Some people are skeptical. During the boom time, a lot of companies that went public shouldn't have."

One example is Pets.com, the online pet-products outfit that raised more than $100 million--then went bankrupt only a year after listing. TheGlobe.com was another hall-of-shamer.