NEW YORK (CNN/Money) -
The initial public offering market is coming back. Really.
No, calling for an IPO comeback has not exactly been a winning bet for the past couple of years. At the start of 2002 there were people who were just certain that there would be more companies going public than in 2001. They were wrong. And they were wrong again at the start of this year, which looks like it will be worst year for IPOs since 1990.
Put simply, things have been just awful -- but now it looks like a fresh breeze is stirring to blow the stench away.
This week is set up to be the busiest for IPOs since November last year with two issues, AMIS Holdings and Journal Communications going public Wednesday and another two, Anchor Glass Container and RedEnvelope slated for Thursday. There's a big raft of deals set to come out in October, and the number of companies filing with the Securities & Exchange Commission is surging.
"You can't say this is a full blown strong IPO market, but indications certainly are that it's getting better," said Joe Hammer, managing director of capital markets at investment bank Adams, Harkness & Hill.
It's been a while coming. Even though the stock market bottomed back in October, it wasn't really until this July, which saw eight companies go public, that IPO activity showed any sign of life. But these issues did well, for the most part, as have the issues that followed in August and this month.
Specialty chipmaker SigmaTel (SGTL: down $0.21 to $21.40, Research, Estimates), for example, went public Friday at $15 -- well above where it was expected to price -- and jumped to $19.80 at the close. It's added to those gains since, and is trading at $21.45.
Performances like this attract investors to the IPO market, which in turn encourages more companies to float their shares.
It helps that many of the companies going public now have been waiting to do it for some time, and are far more seasoned than the slipshod fare that hit the market in the late 1990s (although we all do miss the sock puppet).
"The companies coming out of a bad IPO cycle tend to do pretty well, because there's more discretion," said Kathy Smith, portfolio manager at Renaissance Capital's IPO Plus Aftermarket Fund. "In order to lure investors, they have to be better companies with better valuations."
The test to see if the ball can really keep rolling, said Adams, Harkness & Hill's Hammer, will be to see how readily the market can digest the big backlog of deals coming out in October. If investors keep up their enthusiasm, it could mean that the storm really has passed.
That would be good news for investment bankers like Hammer, to say nothing of big firms like Goldman Sachs and Morgan Stanley. The deterioration of the IPO market has been a major blow to Wall Street's bottom line, and though a return to 1999 levels of activity just isn't in the cards, a return to, say, 1997 levels sure would be nice.
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If there is a complaint to be made about the uptick in IPOs, it is that the wrong sorts of companies are drawing interest. Much of the money raised this year, meager as it's been, has been in the tech and biotech spaces. These are arguably areas of the economy that are still on the crowded side.
Meanwhile, just one energy company has gone public and nothing in the utility sector -- even though the high price of energy, last month's big gasoline line break in Phoenix and last month's blackout in the Northeast suggest that these are areas ripe for investment.
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