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Companies going public while the going's good Print E-mail
Friday, 30 October 2009

By John Goff

All the talk about a ‘W’ shaped recovery and a coming stock market crash seems to have spurred IPO candidates into action.

The pipeline for initial public offerings increased to 34 registrants as of the end of the third quarter, according to Ernst & Young. Those nearly three-dozen private companies are looking to raise close to $11 billion with their stock offerings.

That’s a sizeable bump-up in IPO activity, particularly in deal size. As of the halfway mark of the year, the 28 initial public offerings in the pipeline were projected to bring in less than $7.7 billion.

And bear in mind, 14 companies went public in the third quarter, which lowered the number of IPOs in the pipeline. But that exodus was more than offset by the 30 new registrations during the quarter.

In Q2, just 10 companies went public, while eight businesses filed IPO registrations.

E&Y removed 15 companies from its list because their registrations passed the one-year mark. Three companies that did go public during the third quarter had passed the year mark and were no longer included in the pipeline: A123 Systems, Select Medical Holdings and Cumberland Pharmaceuticals, which initially filed in 2007. One registrant withdrew. Another, Cloud Peak Energy, re-registered but at a lower level of capital.

“The $10.9 billion in the pipeline certainly trumps last quarter’s total of $7.6 billion,” said Jackie Kelley, Americas IPO Leader at Ernst & Young. “And the resurgence of substantial deals will continue to drive pipeline growth.”

Indeed, new registrants are aiming to raise larger amounts of capital. Projected deal values of the newbies topped $11.3 billion, or roughly $379 million per company.

That average was boosted substantially by two registrations. JBS USA Holdings plans to raise $2 billion with its IPO. Shanda Games, which registered in the third quarter and went public on Sept. 25, raised $1 billion.

The Shanda IPO, however, underscores the precarious nature of the market. The much-ballyhooed spinoff of one of China’s largest videogame makers didn’t live up to its billing. The ADR launched at $12.50, but closed at $10.75. Since then, it’s been trading under $10.

Technology companies should fare better, given the recent run-up in the Nasdaq composite index. According to E&Y, six tech companies registered for initial public offerings in the third quarter -- the most of any sector. Oil and gas operations followed with four deals.

The IPO queue could get longer, too, as private investors look to take advantage of the rebound in the stock market.

“What we don’t see in these numbers [right now] but can expect to see in the future is a number of mid-sized companies, many backed by private equity and venture capital firms,” said Kelley. “These companies are taking steps today to enter the pipeline in the next few months.”

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