Companies are lining up to go public. Market conditions are favourable. Investor appetite is strong. But not all the stocks are sure bets.
Following a string of healthy debuts, the pipeline for initial public offerings is bursting. In all, 168 companies are waiting to go public in the United States ? the largest backlog since 2000, according to Renaissance Capital, an IPO advisory firm. The group, which includes Dunkin? Brands, LinkedIn and Toys ?R? Us, is aiming to raise some $38 billion.
The situation is similar overseas. Glencore, the world?s largest commodities trader, is set to go public with a dual listing in Hong Kong and London. The offering, at roughly $10 billion, is on track to be the largest IPO this year.
?The IPO market is a cycle, it?s bought on hope, held in greed and sold in fear ? we?re in the first stage,? said John E. Fitzgibbon Jr, founder of the research firm IPO Scoop.
The pickup in public offerings is natural, given the strength of the broader equity markets. After suffering a setback during the European debt crisis, the Standard & Poor?s 500-stock index is up 28% since August. It tracks the improvement in the deal-making environment, with mergers and acquisitions at their highest volume since before the financial crisis.
?There is a connection between the M&A market and going public,? said David J Goldschmidt, a lawyer at Skadden, Arps, Slate, Meagher & Flom who specialises in capital markets transactions. ?Today we have a stronger M&A market and stronger stock market, which gives private companies the option to take a company public or to sell it.?
Investor interest is high, too. In one sign, traffic to Renaissance Capital?s Web site rose 40% in April to 400,000 unique visitors and is on track to reach a record in May. Fitzgibbon of IPO Scoop says the number of subscribers to his site has doubled from last year.
With investors clamouring, corporate issuers are increasingly gaining the upper hand in pricing their stocks. In April, the car rental company Zipcar sold its shares at $18 ? a couple of dollars above its expected range. Zipcar currently trades at $25.
About 30% of offerings have priced above expectations so for this year, according to Renaissance Capital. In 2010, only 12% did the same.
?Last year, we had a market where investors had been in the driver?s seat,? said Kathleen S Smith, a principal at Renaissance. ?Power is shifting, while investors are still driving, it?s a better market for issuers.?