There's a billion dollar side benefit to the stock market's fourth-quarter march into record territory: 2006 looks to be one of the best years for initial public offerings since the end of the dot-com boom.
With $8 billion of deals, last month was the biggest for IPOs since June, 2001, according to data provided by Dealogic, a market analysis company. It also was the best November since 1999, when technology stocks roared into the public markets.
There have been 172 IPOs so far in 2006 on the Nasdaq Stock Market and New York Stock Exchange, compared to 199 at the same point last year, according to Dealogic. However, the amount of money raised because of the robust stock markets has risen 4% to $40.1 billion so far this year from $38.6 billion in all of 2005.
The trend is widely expected to continue, with investors seeing a varied crop of companies looking to float stock, observers said. Small to mid-cap growth companies are expected to be the biggest group pursuing IPOs this month and into early next year, and those have traditionally shown the best performance.
"More Interesting IPOs"
"If we have this kind of economy that is taking a Goldilocks shape, which is the Federal Reserve warning but not raising rates, you're going to see more interesting IPOs and more growth companies," said Kathleen Smith, a principal at Renaissance Capital. "And, if you're patient, you can get in on it."
There are 11 deals already scheduled for December, and Smith contends more might be added as investment banks fast-track them to take advantage of Wall Street's record run. The Dow Jones Industrial Average is still near the record high levels it hit in November, and all the major market indexes are poised to finish the year with double-digit growth.
There is currently a backlog of 130 deals filed with the Securities and Exchange Commission worth approximately $18.2 billion that have yet to launch. Market observers believe they'll likely approach the markets early next year.
However, there isn't the kind of IPO euphoria seen during the dot-com bubble. For example, companies from outside the U.S. are actually becoming more hesitant about listing in this country because of a strict regulatory environment that makes compliance more expensive.
Treasury Secretary Henry Paulson is trying to address those concerns. He said last week U.S. regulators must ease rules requiring public companies to test their internal controls under the Sarbanes-Oxley reform law.
U.S. "Too Restrictive"
"The real change that's going on is that a lot of IPOs are headed toward London and Europe because they're viewing the U.S. regulatory environment as too restrictive, and that's a problem," said Stephen Massocca, president of Pacific Growth Equities.
"There's a chance for a real big IPO cycle, but increasingly it's going to happen somewhere else and not here," he said. "There are still companies that are going to list in America, and feel there is just not a sufficient reputation in these offshore markets."
The rivalry between the Nasdaq and NYSE increased this year as both exchanges battled to attract the most number of IPOs. The Big Board has signed up 58 IPOs worth $26.9 billion this year, while the Nasdaq had 114 worth $14 billion, according to Dealogic.
The Nasdaq, however, said it had 135 initial public offerings this year, including all three of its exchanges--the Nasdaq Global Select Market, the Nasdaq Global Market, and Nasdaq Capital Market. The NYSE, which has higher listing standards than the Nasdaq, had offerings from 17 closed-end funds that raised $18.4 billion in proceeds.
Luring International IPOs
NYSE Chief Executive John Thain has made no secret of his desire to boost the number of IPOs, and is particularly keen on securing international ones. The NYSE had one of its biggest IPOs this year from China, medical devices maker Mindray Medical International.
On Tuesday, Thain gave a speech to Chinese business leaders calling for more deals.
"All of you who have a company even a quarter as good as Mindray, please come see me afterward and we can do business because we're definitely looking for the next 20 Mindrays," Thain said.