Initial public offerings have poured into the stock market after an April drought.
Only 37 companies went public in April, raising a combined $1.61 billion. Since then, 47 companies raised $4.29 billion in May and 65 raised $6.55 billion in June, according to Bloomberg Financial Markets.
“In April, we were just sitting around waiting for red herrings to come in so we could analyze deals,” said Dan Dykens, an analyst at Renaissance Capital Corp. in Greenwich, Connecticut, referring to IPO informational booklets. “Recently we’ve been very busy.”
The IPO market is surging ahead as the overall stock market sets records amid a healthy economy. On top of that, well-received IPOs such as Rambus Inc. and Qwest Communications International Inc. helped persuade more companies that the time was right to go public.
Still, IPOs this year lag behind 1996’s. In the first six months of this year, 291 companies raised $19.7 billion, far less than the 460 companies that raised $33.7 billion in last year’s first half, according to Bloomberg.
The slowest month was April, which had far fewer IPOs than April 1996, when 86 IPOs raised $9.97 billion, including the $3.03 billion spinoff of Lucent Technologies Inc. from AT&T Corp. Only about 47 companies filed with the U.S. Securities and Exchange Commission to go public this April, down from about 67 in March, according to IPO Crossroads.
“April was death,” said Arden Armstrong, a money manager at Miller Anderson & Sherrerd. After a stronger IPO market in May and June, “we’ve come out of the death spiral,” she said.
The IPO market owes part of its change in fortunes to the improvement in the performance of small-capitalization stocks. The Russell 2000 Index, which measures those stocks, is up about 16 percent since the end of April. The Standard & Poor’s 500 Index has risen about 14 percent since that time.
“The market for small-cap stocks started to perform well with the Fed not doing anything,” said Robert Ammann, manager of small-cap growth fund Founders Discovery Fund. “I think people finally said ‘Enough’s enough’ with the discrepancy between small- and large-cap stocks.”
The Bloomberg IPO Index, which measures the performance of new issues during their first year of trading, has risen about 29 percent since the end of April, double the increase in the Russell or S&P 500. In the week of June 9-13, more stock was sold through IPOs in the U.S. than in any other week this year, according to Securities Data Co. in Newark, N.J.
Small-cap stocks - and the IPO market in general - are benefiting from less worry over possible interest rate hikes, as well as from improvement in the economy in general.
Investors are “really happy about the economy. People are spending money again,” said Gil Knight, managing director of Allied Investment Advisors. “A lot of people who buy IPOs are small investors, and they’re the ones in many cases who are feeling good.”
Investor confidence in IPOs began to change in mid-May, when two small technology companies went public with impressive results for those who bought the offerings. Rambus Inc., which designs technology that speeds communication among computer chips, went public May 14 at 12 and closed that day at 30 1/4, more than doubling in price. Software maker LHS Group went public at 16 a few days later and closed Thursday at 46 1/2.
Several larger IPOs, while rising less on a percentage basis, still made money for investors. Polo Ralph Lauren Corp., maker of designer clothing and other products, rose 21 percent on its first day after pricing above the expected range. Oil driller Santa Fe International Corp. had the biggest IPO of the year, worth $998 million, in the same week and has risen from its offering price of 28 1/2 to close Thursday at 37 1/4.
Late last month, Qwest Communications International, a long-distance communications company, rose 6 to 28 on its first day.
The IPO market is benefiting from the health of the market at large, said Steve Tuen, an analyst at IPO Value Monitor. Controlled inflation, modest economic growth and confidence over interest rates are boosting stocks, he said.
“With the market continuing to hit new highs, it’s really hit the investors’ enthusiasm and really loosened their purse strings,” Tuen said. “Maybe investors think that small caps have some room to run, relative to large caps.”
To be sure, the resurgence in IPOs could slack off somewhat in the weeks to come.
Some offerings in the past few weeks were delayed or cut, and the summer is traditionally quiet.
“We’re headed into a historically very slow period for the IPO market and tech stocks in general,” said Ryan Jacob of IPO Value Monitor.
“Regardless, whether the IPO market is slow or strong through the summer months,” Jacob said, “I would definitely expect a pickup again after Labor Day.”
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