Market for IPOs in a slump After a hot '96 and '97, offerings cool off


PICKING THE next Microsoft is about as easy as winning the Powerball jackpot -- and it just got tougher.

The reason? The market for companies going public is in a deep freeze.

Fewer offerings are coming to market than in the past two years, and many companies that have made their debuts have been snubbed by investors. Some offerings have been postponed, and others have cut the amount of money they plan to raise because of dimmed expectations.

"This is more like an Arctic cruise than a sea trip to the vTC Bahamas," said John E. Fitzgibbon Jr., editor of the New York-based IPO Reporter, who has followed the market for nearly four decades. "You will see deals postponed, you will see deals chopped in half."

Indeed, the mood for initial public offerings is blue compared with 1996 and 1997, when euphoria swept through the stock market.

In 1996, for example, the market for IPOs sizzled when 874 companies went public and raised $50 billion. Last year, 820 companies came to market, raising nearly $60 billion.

One blockbuster deal seemed to follow another. Investors couldn't wait to get a piece of Yahoo! Inc., which shot up $20 the first day it traded. Or Ciena Corp., which jumped 60 percent from its $23 offering price. Or Rambus Inc., which wowed investors when its shares soared more than $18 on its debut.

Those blowout offerings, referred to as "moonshots" on Wall Street, have been few and far between ever since the stock market cooled off in May.

The pace of deals has slowed, but more worrisome is the performance of IPOs.

Fitzgibbon counted 133 deals in April, which rose 34 percent from their initial offering price, compared with 200 deals as of June 4, whose stock rose 13.3 percent. "Miserable," he said.

The laggards include Harvey Electronics Inc., down 52.5 percent; EarthShell Container Corp., down 37.5 percent; and Rollerball International Inc., a maker of skates, down 35 percent.

Even large companies that investors have expected to do well are struggling. Ziff-Davis Inc. raised about $400 million in its public offering in April, and it's down 9.6 percent. Heller Financial Inc., which raised almost $1 billion, is trading a mere 44 cents above its $27 offering price.

"The market is cold for IPOs," said Steven Shea, head of corporate finance at Ferris, Baker Watts Inc. in Baltimore.

There have been some exceptions. Inktomi Corp., a San Mateo, Calif.-based Internet company, doubled Wednesday, its first day of trading, rocketing $18. Broadcom Corp., which designs modems and high-speed networking systems, rose 120 percent on its first day of trading in April, up more than $29 a share.

Experts blame the lackluster IPO market on problems with Asian economies, which have dimmed investors' prospects about the stock market overall.

The stock market, in turn, has been in a malaise for the past month. The Dow Jones industrial average reached a high of 9,211.85 on May 13 and has struggled since. So has the Nasdaq, where many of these companies trade. On June 3, the index fell to a 52-week low of 1,742.31, losing more than 175 points from its April 22 high of 1,917.61. "When the market softens like this, the general level of inquiry and interest from the public really subsides," said David DiPietro, head of equity capital markets at BT Alex. Brown Inc.

But some believe this is precisely the time investors should be looking hard at these new stocks, even though they look like run of the mill stuff.

"Who's to say that in six weeks it [the IPO market] won't be flying again?," Fitzgibbon said.

Pub Date: 6/14/98

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