IPOs back in favor - East Valley Tribune: Business

IPOs back in favor

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Posted: Tuesday, July 6, 2004 5:33 am | Updated: 5:09 pm, Thu Oct 6, 2011.

LOS ANGELES - On one hand, there’s a wild rock concert like Woodstock and on the other, a classical music concert on a blustery afternoon in a park.

Big difference, right?

That’s how John Fitzgibbon, who underwrote stock offerings for 18 years, compares and contrasts the current market for initial public offerings with the free-for-all attitudes of the dot.com era.

‘‘It was a wild, frothy bubble and now it isn’t because people have gotten religion because the bubble bursting and companies tanking gave it to them,’’ said Fitzgibbon, who is an expert on IPOs as a pundit for IPO Desktop.

‘‘The IPO market is one where stocks are bought on hope, held in greed and sold in fear and right now the hope and greed is back with the fear to come later. Anyway, we’re poised for a resurgence of offerings.’’

This year, the hype surrounding Google and an improving economy is fueling that resurgence.

Last year, the business world saw one of the worst IPO droughts in recent memory with less than 80 offerings.

As of the beginning of June, there have been almost 70 deals already. Moreover, close to 190 companies have already filed with the Securities and Exchange Commission, outlining intentions to float shares on the market. That figure is up from 129 for the whole of 2003.

‘‘The market is definitely building up a head of steam,’’ said Kathy Smith, a research analyst with Renaissance Capital Corp., a company specializing in researching and investing in IPOS. ‘‘You have to go back nearly four years to come up with numbers that match the pace of this activity.’’

What this means for the individual investor is open for debate as the IPO market has long been the domain of Wall Street insiders, high net-worth investors and institutional underwriters.

Further, brokers are the omnipresent buffer between the hot deal and the average Joe. Thus if an individual’s broker is out of the loop, the chances of getting in on pre-IPO shares are slim to none.

Fitzgibbon says a lot of brokers typically miss out on deals because they are not part of the circle of underwriters.

‘‘It’s like a bus,’’ he explains. ‘‘If you’re on, you ride, if you’re not, you don’t.’’

There are ways to get around being excluded if one is willing to do the work. Here are five steps toward getting in on any given deal.

• Know what you’re investing in: From the list of companies that have filed, develop points of interest. Study the fundamentals of the companies you pick. For help finding listings, hoovers.com and ipohome.com are good places to start.

• Look for active underwriters: Companies going public can have anywhere between two and 50 underwriters. Whatever the case, make sure that the underwriter you choose is in on the deal you want to be a part of.

• Put your money down: After you’ve found the underwriter you need, you should set up one or two brokerage accounts -- either online or through a specialist — with that investment bank in order to execute the purchase.

• Contact a broker: Once you’ve set up the account, you should be as specific as possible when requesting an allocation on a particular IPO.

• Check your work: On the day of the offering, make sure the shares are in your account by checking directly with your broker or by looking at the status of your online account.

For anyone serious about getting in on an initial public offering, the homework duty is extensive. Rules vary from brokerage to brokerage, which means there may be some restrictions that bar you from a deal no matter what steps you take.

Fitzgibbon said that it all comes down to Wall Street’s golden rules.

‘‘They who have the gold make the rules. When you look at offerings in general, Aunt Tillie who is living out her days in retirement and Joe Six Pack are not the type of people who normally get in on deals in the early stages.’’

But corporate attitudes toward the individual investor in regards to public offerings could change when Google goes public.

The Google offering is historic in that it will add to the momentum of the current IPO market and is likely to bring the individual investor back to the table for the first time since the bubble burst.

To attract the little guy, Google is planning its comingout party through a massive auction where shares will be distributed based on how much bidders are willing to pay. Typically underwriters collect all the orders and then work with the company they are taking public to establish a final offer price.

‘‘We seek to enable all interested investors to have the opportunity to qualify, to bid and following qualification, place bids in the auction for our initial public offering,’’ states an excerpt from Google’s prospectus. ‘‘To help meet this objective we expect to use an underwriter group that serves all segments of the investing public.’’

Google started out with two underwriters in Morgan Stanley and Credit Suisse First Boston, but now has more than 30.

While specific terms of the offering have not yet been disclosed, according to initial backers Sequoia Capital and Kleiner Perkins, the size of the offering could be as much as $2.7 billion, which would make it one of the largest tech offerings in history with the company commanding an initial market value of $25 million to $30 billion.

Observers say that Google is unlikely to go public before late July and may not float its shares until Labor Day.

Smith says the hype behind the Google deal is good for the market and comes amid a better environment for IPOs than during the time of the bubble. She added that quality of companies versus quantity of companies will always be a determinant when examining the IPO market.

‘‘It all comes down to questions such as how many companies now are profitable compared to back then. In the late ’90s and in 2000, 75 percent of the companies weren’t profitable,’’ she said. ‘‘Another thing we ask today is, how old are the companies? Back then there were mostly start-ups. Now the companies going public have been in business much longer and that’s a good thing."

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