IPOs in 2008: Uncertainty assured

NEW YORK (CNNMoney.com) -- As financial markets go, so go initial public offerings.

It's not a foolproof rule, but it has been an apt description lately. And if the uncertainty swirling around financial markets fails to improve, Wall Street could expect more challenges for IPOs in 2008.

No matter how December shakes out, 2007 will actually turn out to be one of the best years for public offerings since the dot-com boom of the late 1990s, as $61 billion was raised through late November, according to deal tracking firm Dealogic.

But amid the market's volatility in recent months, a growing number of companies have gotten skittish about going public. In the month of November alone, 16 offerings totaling approximately $5.6 billion were postponed or withdrawn altogether.

"Look at what happened," said Sal Morreale, who tracks initial public offerings for Cantor Fitzgerald. "It tells you something about the general environment."

Financial markets in the United States have felt squeezed lately as major financial services firms, which continue to largely dictate the direction of major indexes, face the threat of more writedowns. Meanwhile, credit markets remain in shambles and the overall U.S. economy is in jeopardy of tipping into a recession.

Unfortunately, there's no indication that those problems are going away - at least in the near term.

As a result, public offerings should face greater scrutiny next year, said Francis Gaskins, president of IPOdesktop.com.

Firms that are loaded up with debt may find it more difficult to go public, while those firms that show top-line growth and a path to profitability are likely make it to the market, Gaskins argues.

"They [investors] are not willing to buy promises, they want performance," said Gaskins. "It's basically back to finance 101."

Many IPO experts were hesitant to prognosticate too far into the future. Nevertheless, a few clear patterns for 2008 are emerging in a time of uncertainty.

One trend that gained momentum in 2007 likely to continue through next year is the growing number of Chinese firms listing on American exchanges.

So far this year, 27 Chinese companies have listed on U.S. exchanges, up more than five fold from 2006, according to Dealogic.

Not all have fared well, but with China's booming economy and U.S. investors anxious to horn in on the country's growth, Chinese IPOs are likely to play an important role in 2008.

Four Chinese firms are set to go public in the next two weeks.

"That will probably be a good barometer as to how 2008 will open with China," said Scott Sweet, managing director of IPOboutique.com.

Another safe bet on the lips of IPO experts is the arrival of the hotly anticipated public offering of Visa, the nation's largest credit card network, which is expected to land during the first quarter of 2008.

Given its sound business model and the success of rival Mastercard (Charts), whose shares have gained 417 percent since it went public in May 2006, Visa is one of the few companies in the IPO pipeline that has generated significant buzz, said Ben Holmes, head of Morningnotes.com, an IPO research firm.

"That's a deal I think everyone is looking at," he said.

One of the most highly-anticipated IPOs of 2007 was Blackstone Group. Since its May debut, however, shares have fallen 30 percent, making an IPO by rival private equity firm Kohlberg Kravis Roberts & Co. unlikely. KKR has indicated it plans to push ahead but experts remain doubtful.

The days of cheap credit for private equity firms are a distant memory, while the industry faces a dwindling number of companies ripe for a takeover. In addition to the dismal performance of Blackstone (Charts), shares of hedge fund manager Och Ziff Capital Management (Charts) are down 23 percent since it went public last month.

"Had Blackstone done what they thought they would do, we would have seen a line out the door with these private equity firms," said Sweet. "But there is nothing but angst towards them right now."

On the other end of the scale, the tech sector should be a source for many of next year's IPOs.

Morningnotes.com's Holmes says tech players that satisfy a niche like network services firms are among the more likely to go public in the coming year.

"I think that still has room to go," he said. "I think there is still room for tech deals."

While experts like Holmes also mention medical devices as another sector that should remain robust in the coming year, one of the breakout hits of 2008 could be social media, considered one of the fastest areas of advertising growth on the Web.

Markets will be paying particularly close attention to the IPO of Classmates Media, the online social networking subsidiary of Internet service provider United Online set to go public on Dec. 13 under the ticker CLAS.

"If Classmates does well," said Holmes, "we could see a run of social media IPOs going into next year."