For companies looking to go public, it's starting to feel a like the financial crisis never happened.
This week, a radically transformed General Motors will sell shares to investors in what could be the second-largest initial public offering by an American company in U.S. history, fetching upward of $10-billion (U.S.).
Feverishly anticipated by investors, GM's listing will cap a remarkable year for new offerings worldwide. The proceeds from such deals are more than double what they were at this point last year, according to data provider Dealogic. Four of this year's IPOs, including GM, will number among the 10 largest of the past decade. And October was the biggest month for IPOs on record, driven by major transactions in Asia.
Just eighteen months ago, the IPO business was dead in the water, throttled by a financial crisis that left investors scrambling for safety. If buying stocks is an expression of optimism, then buying shares in IPOs is more like a profession of faith - putting money in what are often untested or restructured businesses.
In recent months, though, that's exactly what investors have been doing. A modicum of confidence about the U.S. economy and a lower level of volatility in stock markets are driving interest in shiny new offerings. Companies that have gone public in the U.S. this year have beaten the broader market, though that masks a wide variety of performance, with some stellar and some dismal.
For IPOs, this is "the best market we've been in" in three years, says Mark Hantho, global co-head of equity capital markets at Deutsche Bank. "It's probably even a better market than three years ago because people are much more disciplined about what they're investing in and why."
Mr. Hantho notes that each gigantic IPO that manages to succeed, regardless of its location, makes investors feel more secure and prepares the ground for other deals to follow. "Confidence in the new issue process has improved dramatically," he says.
Just last month, for instance, AIA Group Ltd., the Asian arm of American International Group, went public in a $20-billion listing in Hong Kong, the year's second-largest IPO (the first prize goes to Agricultural Bank of China, which raised $22-billion in July).
The geography of this year's IPO bounce is revealing, with the vast majority of the action taking place in Asia, followed by Europe. Post GM, the U.S. is likely to move into a distant second place in the regional stakes.
Perhaps not surprisingly, Hong Kong is the world's hot market for IPOs this year, with a number of companies choosing to go public there without listing anywhere else. They include UC Rusal Ltd., the Russian aluminum giant, and L'Occitane International SA, a cosmetics company based in Luxembourg, both of which listed in Hong Kong earlier this year.
"Investor demand there seems to be much bigger," notes Josef Schuster, founder of IPOX Schuster, a Chicago-based firm which tracks IPOs. He adds that Italian fashion house Prada is also considering going public in Hong Kong some time in the first half of next year.
As the climate for new offerings becomes more welcoming, it is drawing a broader swath of businesses, note analysts, which can mean both opportunity and peril for investors. "When you have a full moon, it brings out the crazies," says Bill Buhr, the IPO strategist at Morningstar Inc. "A good IPO market can bring out a lot of variation in terms of companies."
There will be everything from established but challenged businesses like GM, he notes, to young biotechnology companies with no revenue that are awaiting approval for their only drug therapy.
No one expects a return to the go-go days that characterized the Internet boom of the late 1990s, when IPO mania was at its zenith. But experts say an offering like GM, both because of its size and its brand-name recognition, could fuel a higher level of interest in future offerings, particularly among average investors.
Kathleen Shelton Smith is a principal at Renaissance Capital, a Connecticut investment firm that specializes in IPOs. She says individuals have bombarded the company with e-mails, asking questions about the GM listing, a sign that the deal has captured their imagination.
Caught between fear and hope, many individual investors are asking themselves, " 'Should I buy more gold or do I dare get back into the market?' " she says. "Then you have GM going public … [it's]a wake-up call that the market is open for business."