IPO market takes a breather

Fri Feb 18, 2005 05:56 PM ET

By Michael Christie

MIAMI, Feb 18 (Reuters)- The U.S. initial public offerings market takes its first breather of the still-young year this week during a long holiday weekend, giving investors time to digest a healthy, if not overwhelming, start to 2005.

With few hallmark names to chose from, the average first day gain on the 37 IPOs so far this year is a modest 7 percent, said Richard Peterson, chief market strategist at Thomson Financial. Nine IPOs lost ground on their first trading day.

Yet the week closed with a 35 percent first-day gain by Dolby Laboratories Inc. (DLB.N: Quote, Profile, Research) on Thursday, raising expectations for stronger performances in the coming weeks.

"The IPO market's alive, it's rolling. The market's been spongy, but you have to remember where it's come from," said John Fitzgibbon, an IPO analyst with IPO Desktop.com and the Red Herring Web site. "There's still a lot of money out there and it's been spilling into the IPO market."

There just will not be much spilling into the market this week. No large IPOs are expected, a usual occurrence during a holiday-shortened week.

Still, experts have been encouraged by the number of new issues coming to market. Last year, only 22 U.S. IPOs priced in the same time frame, even if they scored an average first day gain of 14 percent, said Peterson.

IPO experts argue that the raw numbers only tell half the story. The market remains comfortably trapped between caution and enthusiasm, analysts said.

Gone are the pre-Iraq war days at the beginning of 2003 when raising equity capital was almost impossible. So too are the heady tech-boom days of 1999 and 2000 when anything sold.

"I think it's one of the relatively rare times in the IPO market when investors are not looking at the companies, either with rose-colored glasses or through jaundiced eyes," said Jay Ritter, a professor of finance at the University of Florida.

"Today's IPO market can be characterized as one where investors are looking at the company and if the company has a plausible story, hopefully backed up by operating earnings and revenue and is being priced at a reasonable valuation, the market is receptive."

With the Iraq elections and Greenspan's congressional testimony out of the way, IPO experts said the main thing that could now hurt the pipeline for new offerings was the potential for U.S. or Israeli military action over what Washington says is Iran's nuclear program.

"I'm terrified of what could happen here if we just continue to move along in the process of, well, we've got to take care of Iran now," said David Menlow, president of IPOfinancial.com.

"If it's brought to the mainland here, I fear for what the ramifications will be in the financial markets."

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