IPOs returning to Wall Street after deep freeze
The world may not be ready for another dot-com boom, but Wall Street is definitely warming up to IPOs again.
Companies are lining up to sell their shares to the public for the first time, signaling that the long-awaited reawakening of the moribund market for initial public offerings might finally be happening.
"It's a strong year for the IPO market," says Josef Schuster of IPOX Schuster. "It's the best environment since the mid-1990s for good companies. It's amazing."
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The clip of IPOs this year is already on the verge of blowing away recent deal activity. There have been 116 IPOs this year, which is up 35% from this time last year. The number of IPOs is already just about to pass up the 128 done in all of 2012 and 125 in all of 2011.
All told, companies have already raised $25.2 billion from IPOs. That's down 16% from last year, but only because of the massive Facebook IPO that occurred last May. Excluding Facebook's more than $15 billion in proceeds, the money raised by IPOs would be up more than 68% from this point last year.
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Reasons the IPO market, despite several false starts, is finally showing signs of life include:
• The rising broad stock market. IPOs are one of the last corners of the stock market to recover. And with stocks hitting record highs daily, and the Standard & Poor's 500 up nearly 20% this year, IPOs follow, says Francis Gaskins of IPO Desktop Premium. "The lake is rising, and when the lake rises, people rush to get their boats out," Gaskins says.
• The Facebook effect. The much-ballyhooed deal of social-networking site Facebook was supposed to draw positive attention to IPOs. But shares stumbled 40% instead, scaring investors away. But now that Facebook finally closed above its IPO price, making early investors whole again, it's encouraging individual investors to take a look at other deals, says Kathy Smith of Renaissance Capital.
• Strong performance of recent deals. There's a virtuous cycle with IPOs brewing, as strong gains by past IPOs make investors look for more. The FTSE Renaissance U.S. IPO Index is up 32.6% this year. Some banner returns of recent deals, too, feed investors' reception of IPOs. SolarCity, a solar installer, is the best-performing IPO in the past 12 months, gaining 407% from its December IPO, Renaissance says. And this year's winner, 3-D printer company ExOne, is up 243% since its February IPO. That's not to mention some recent first-day gainers. Organic food store Sprouts surged 122% its first day of trading on Thursday, and Athlon Energy gained 38% Friday after its IPO.
But while IPOs are faring better, it's hardly a flashback to the halcyon days of the Internet bubble, Smith says. Investors remain picky and punish deals that aren't ready for prime time, shown by the fact a third of recent IPOs are trading below their offering price.
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"When we have big jumps (in IPO activity), we all get nervous," she says. "You have to be selective and not just go in and think guaranteed returns."
—By Matt Krantz of USA Today