Associated Press

IPO Climate Favors Profitable Companies

By KRISTEN A. LEE 08.17.07, 5:17 PM ET

NEW YORK -

The market for initial public offerings has entered a seasonally quiet period, but analysts say the IPO pipeline remains strong, with 155 deals slated for after Labor Day.

Despite the recent volatility in the stock market, the line-up of future offerings is "quite robust" said Linda Killian, the portfolio manager for Renaissance Capital's IPO Plus Fund.

Killian said technology and communications companies make up 20 percent of the pipeline and health care IPOs, including small biotechnology deals, make up another 20 percent. Energy and financial deals follow, with a 19 percent and 18 percent share of the pipeline respectively.

Analysts note, however, that the atmosphere of uncertainty in the stock market will make the reception for offerings by unprofitable, weaker companies much more difficult. Killian said she expects quite a few of the small biotechnology deals to struggle. She cited specialty drug maker Cumberland Pharmaceuticals Inc.'s IPO, which has failed to price despite the company's modest first-quarter profits, as an example.

"If they're showing losses, they're going to have a real hard time going public," said Francis Gaskins, president of research company IPODesktop.com.

Financial companies, analysts note, will also have an uphill climb. Killian said the market's appetite for offerings from buyout firm Kohlberg Kravis Roberts & Co and hedge fund Och-Ziff Capital Management Group LLC remains a "question mark" after the disappointing results of IPOs by private equity firm Blackstone Group and brokerage MF Global Ltd., which spun-off from Man Group PLC in July.

Gaskins predicts that the KKR deal won't be completed, but said upcoming offerings by financial advisory and investment banking company Duff & Phelps Corp. and Pzena Investment Management Inc. may fare better.

Killian also noted that specialty finance company Chimera Investment Corp., which invests in residential mortgage loans, filed for an initial public offering on Friday. She said the deal, which is underwritten by Morgan Stanley, will be watched closely considering the subprime mortgage market's deterioration and other credit market woes.

In the technology sector, Killian said storage companies are of particular interest to Wall Street. Some of the most anticipated IPOs in that area include those by 3Par Inc., Compellent Technologies Inc., EqualLogic Inc. and Omneon Video Networks Inc.

Killian said on demand software companies are also attractive to investors. The most talked about deals in that area include human resources software provider SuccessFactors Inc. and online business software provider NetSuite Inc. NetSuite is owned by billionaire Larry Ellison, the co-founder and chief executive of Oracle Corp.

In the communications sector, the planned IPO of wireless communications company Virgin Mobile USA Inc. tops the list. Virgin Mobile is a joint venture of Sprint Nextel Corp. and the Virgin Group.

Gaskins also pointed to life insurance company Symetra Financial Corp., nuclear services provider EnergySolutions Inc. and Talecris Biotherapeutics Holdings Corp., which makes plasma-derived protein therapies, as upcoming deals of interest.

Scott Sweet, the managing director of advisory firm IPO Boutique, said investors are also anticipating that Swedish open source database company MySQL AB will file for an IPO.

The proposed offering of Synacor Inc., an Internet platform provider, is also an interesting deal in a field that has done well with investors, Sweet said.