Land, Armored Cars, Diesel, Baby Formula: Welcome 2009's IPOs

Investors Business Daily, Amy Reeves Monday February 2, 2009, 6:07 pm EST

That's a bit similar to what the 2009 IPO season feels like. Despite the strong aftermarket of Grand Canyon Education's (NasdaqGM:LOPE - News) Nov. 20 debut, the months since have seen a flurry of withdrawals and no pricings. Those that remain seem to be competing to be slowest to market.

Still, a small contingent of companies has lined up at the starting gate. Renaissance Capital counts four firms that have set the terms and are expected to launch next week.

The strongest offering financially is Mead Johnson , the leading player in infant formula. Though it's a century old, for the last 40 years it's belonged to pharma giant Bristol-Myers Squibb (NYSE:BMY - News). In April, Bristol decided to refocus on its core drug business and spin off Mead.

Mead's growth has been solid, if unspectacular. In the first nine months of 2008, sales gained 14%, while profit rose 9%. It also boasts the biggest-name underwriters, including Citi, Morgan Stanley and Credit Suisse.

"It's probably one of the few healthy income statements that we'll see," said Francis Gaskins, president of IPO Desktop. "This is a healthy spinoff."

Tom Taulli, author of "Investing in IPOs," also likes Mead best.

"It's probably recession-resistant. It's a great brand that's been around a long time, and it's very profitable," he said. "For investors, if you can get a solid company in this kind of environment, it can be a good deal."

The nature of spinoffs means that Mead Johnson won't see any of the proceeds, but there will be a lot of them.

It's planning to sell 25 million shares at 21 to 24 each, which would raise at least $525 million.

That would be the biggest haul for an operating company since Visa (NYSE:V - News) came out in March.

Running a distant second in size is Madison Square Capital, a real-estate investment trust, which expects to raise about $200 million. Despite the real-estate crunch, REITs have kept coming out on the market and kept their heads above water. American Capital Agency (NasdaqGM:AGNC - News) and Hatteras Financial (NYSE:HTS - News) both went public last spring, and are trading near their offering prices.

"If you're looking for income, there's income there," Taulli says of REITs. "Most of the profits go straight to dividends."

A more adventurous company is The O'Gara Group . O'Gara first made its name in the early '80s as the maker of the U.S. President's armored cars. Since then, a series of buyouts has turned it into a more diversified security firm, providing sensor systems and training services for counter-terrorism operations.

The IPO, which is expected to raise about $144 million, will fold three companies into the firm: Italian armored-vehicle supplier Isoclima, its Mexican counterpart TPS Armoring, and OmniTech, a maker of night-vision goggles.

Analysts are less than enthusiastic about this plan, especially since the original firm has a recent history of losing money. Gaskins calls the merger plan "a whole less than the sum of its parts."

Finally, there's a small offering from a company in a field that's getting some buzz again: alternative energy. Changing World Technolo-gies makes biodiesel and fertilizer from the waste products of food and animal processing.

It's the sort of thing the new president would like, but it's coming out at a very early phase.

In the first nine months of 2008, its revenue was less than $1 million while its operating costs exceeded $14 million.

To cover this shortfall, Changing World is doing a Dutch-auction style IPO, offering 2.8 million shares starting at 13. The last biodiesel firm to come out was China's Gushan Environmental Energy (NYSE:GU - News) in December 2007. It's trading for less than 2 a share, even though it's making money.

That adds up to four potential IPOs from four completely different sectors. Jay Ritter, an IPO specialist at the University of Florida's business college, says we can expect more of the same this year.

"Since the meltdown of commodity prices, no sector has stood out as having withstood the market onslaught," he said.

Ritter, like other IPO analysts, believes that the IPO market's future depends on how the overall market does, especially the Nasdaq. Even given a sustained market recovery, the six-month time frame for filing and processing an IPO means it will probably lag behind.

Meanwhile, a number of firms still wait in the wings. In December, Bridgeport Education , perhaps encouraged by Grand Canyon's example, filed to bring its online education business public. Most recently Medidata Solutions , a player in the burgeoning field of medical information technology, filed on Jan. 26.

A firm with decent financials might do well, analysts agree. But "the days of big first-day run-ups have yet to reappear," says Ritter.