The rush of companies looking to go public is turning into a stampede.
As stock markets in the United States touch new record highs, they are proving irresistible to firms in search of cash, producing a boom in listings not witnessed since before the financial crisis or even as far back as the Internet bubble.
In the U.S., 46 companies have conducted initial public offerings so far this year, raising $8.6-billion (U.S.), according to data firm Dealogic. That matches 2007 for the fastest start since the technology craze in 2000, when there were 89 in the same time period.
The rapid pace means that the annual IPO tally could exceed last year’s, which was already considered impressive. Together they represent “the best window for the IPO market that I’ve seen in a decade,” said Mark Hantho, global head of equity capital markets for Deutsche Bank.
Mr. Hantho added that unlike at the peak of the internet bubble, when IPOs consisted of “a lot of business plans going public,” the current crop of new listings includes companies with established track records. Last December, for instance, his firm led the IPO for hotelier Hilton Worldwide Holdings Inc., which raised $2.4-billion.
The buoyant U.S. stock market is rewarding new listings with outsized performance: the average one-month return for IPOs this year is 37 per cent, according to Dealogic, outpacing every year since 2000 over a similar period.
Since the appetite for IPOs tends to follow the broader stock market, firms are racing to go public while the going is good. “Any company knows that the IPO window can shut down and we’ve seen it happen,” said Kathleen Shelton Smith, a principal at Renaissance Capital, a Connecticut investment firm that specializes in IPOs.
According to figures from Renaissance, 56 firms filed papers to list on U.S. exchanges in the first two months of this year, the highest number in that period since 2000.
The booming markets are attracting a variety of companies but the haul includes a large number of biotechnology firms. Last year, 37 firms in the sector went public. Already this year, nearly 20 biotech companies have tapped the stock market for the first time. Such firms carry obvious risks but are riding a new wave of optimism about the potential for targeted gene therapies to tackle a variety of illnesses.
The technology industry proper is another keenly-watched source of IPOs. Last week, Coupons.com, an online discounter, raised $168-million in its maiden outing. Its stock rose 88 per cent on Friday in its first day of trading.
So far this year there has not been a giant marquee IPO – think Facebook or Twitter – but several large firms are believed to be waiting in the wings. General Electric Co., for instance, is planning to spin off and list its North American retail finance unit later this year as part of a plan to refocus on its industrial businesses. The listing could raise up to $4-billion, according to some reports.
Investment bankers are also salivating over the prospect of bringing Alibaba Group Holding Ltd. – the largest e-commerce company in China – to market. The Chinese technology giant is laying the groundwork for a public offering either this year or next, according to the Wall Street Journal. Alibaba could be valued at as much as $100-billion and is reportedly mulling a listing in the United States.
Despite the flurry of IPOs, experts say the current environment doesn’t equal the go-go days of the technology bubble, although it is inching closer. Unlike during the internet heyday, the valuations for new technology companies are based on “pretty optimistic, but not ridiculous, assumptions,” said Jay Ritter, a professor of finance at the University of Florida who studies IPOs.
Still, the current appetite for new offerings means that buyers may overlook flaws in search of profits. “The question is, when they are done issuing the good ones and you’ve gotten to the bad ones, are investors discerning enough to reject them?” Renaissance’s Ms. Smith said.