The New IPO Market

After years of sitting stagnant, the IPO market is starting to slowly heat up again. But the business of going public is looking a lot different than it did a decade ago. Between now and the end of the year we may see a slew of public offerings, but they won't be at the rich valuations companies were hoping for.

One thing's for sure: the IPO pipeline is quite full, as the stock market this year has created a major back log. Right now there are 170 companies looking to raise nearly $60 billion. To put that in context, that's 81 percent more IPOs in the pipeline than last year and the biggest backlog since September 2007. Why the back log? Companies are filing their S-1s with the SEC, but there are more than double the filings than there are companies that make it to market.

Yes, the IPO market is recovering — in Q3 we saw 32 IPOs, up from 20 IPOs in the year-ago quarter. Financials are still the biggest group of issuers, but tech and healthcare companies are advancing fast — together they now comprise a third of IPOs, up from 23 percent a year ago. But here's a key change: IPOs are smaller than they were a year ago — the total value was down 16 percent.

Now IPOs are on track to pick up, but not necessarily at the levels companies were hoping for. Kathleen Smith, the founder of Renaissance Capital, an IPO-focused investment firm says that companies that are in the backlog need to go public, so they'll come out at prices that may be below what underwriters and the companies expect. In fact, Smith says half of the IPOs so far this year have priced below the range underwriters expected.

So what's next? Venture capitalists, looking for an exit, will continue to push IPOs: VC-based IPO filings have grown to 25 percent of the pie. Now we could see as many as a dozen IPOs in the next few weeks, with a slew more this fall.

Investors have their eye on Nielsen, expected to price a $2 billion IPO; Demand Media's expected $125 million IPO; Zipcar's expected to do a $75 million offering; and Netspend, could price up to $200 million as early as this week.

Questions? Comments?