IPOs: 1987 and now
10 years after crash, IPO marketis high energy and increasingly global
NEW YORK (CNNfn)
-- Ten years ago this month, a raging bull market came to an abrupt halt,
ending two back-to-back years of record activity for the IPO market and
nearly crippling the investment-banking community's ability to bring new
Now, with stocks advancing
relentlessly to all-time highs, the 10-year anniversary of the Oct. 19,
1987, stock-market crash isn't spooking the initial-public-offering market.
However, a look at 1997 versus
1987 reveals a market more able to absorb IPOs with comparatively higher
valuations, and an IPO paradigm that has developed an increasingly worldwide
"The IPO market today is much
more of a global marketplace," said Brian Hehir, co-head of Global Equity
Capital Markets at Merrill Lynch. "In '87, the privatization activity was
occurring in fewer countries than we're seeing today."
In dollar terms, deals involving
overseas companies have accounted for 25 percent of the total U.S. IPO
market this year, up from 14.5 percent 10 years ago, according to market
tracker Securities Data Corp.
The privatization of state-owned
telephone monopolies has generated a significant amount -- if not the most
-- of opportunity for bankers this year, Hehir said.
Merrill Lynch is the lead
banker behind some of the year's biggest international telecom offerings
in the pipeline, such as Portugal Telecom, China Telecom and France Telecom.
Deregulation of the local
and long-distance markets also has made the IPO market an attractive source
of capital for U.S.-based telecom-related companies.
This industry is one of the
most active sectors in the IPO market. Sixteen recent telecom IPOs have
raised $1.5 billion, with 13 more planned deals expected to raise more
than $8 billion.
By contrast, only seven telecom
companies went public in 1987, raising less than $640 million.
The real-estate market's fundamental
restructuring has also made real estate investment trusts (REITs) more
attractive than ever as IPOs.
So far this year, 12 REIT
offerings have raised $2.9 billion -- eight times the amount REIT IPOs
raised in 1987.
At the opposite end of the
spectrum, only two closed-end mutual funds went public this year, whereas
closed-end funds accounted for 36 percent of 1987's roughly $27 billion
Energy was also big in 1987,
with British Petroleum -- the year's largest offering -- raising $2.8 billion.
"Back then, a billion-dollar
offering was such an oversized deal," recalled Scott Sipprelle, managing
director at Morgan Stanley, Dean Witter. "The scale of the markets are
so much bigger now, the deals are larger and there are more of them."
In fact, this year's IPOs
average $59 million in value -- 22 percent larger than 1987's deals, according
the Securities Data.
Of course, Internet-related
IPOs didn't exist in 1987, but speculative offerings were a familiar concept.
Robert Natale of Standard
and Poor's Corp. noted that the stock market's price-to-earnings ratio
stood above 20 in 1987, with IPOs priced accordingly.
Natale points out that this
year, IPO investors are even more willing to pay up.
"Valuations are more out of
hand now," he said. "No matter where you look now, valuations are high.
This was not the case back then (in 1987)."
One indication of whether
investors are paying more -- 27 percent of IPOs priced this year came in
above what companies originally sought, compared with only 5 percent in
All in all, IPOs have scored
a remarkable comeback over the past decade.
After the '87 crash, only
24 companies went through with scheduled IPOs in the two months following
the market's meltdown.
IPO activity then completely
dried up in the following three years.
It wasn't until five years
after the crash that volume finally surpassed the record-breaking performance
set in 1987, when 556 companies went public, raising $26.8 billion.
A decade later, the IPO market
is solidly on track, as are many of the companies that went public 10 years
Among 1987's IPOs, more than
10 percent have been acquired by other companies, while only 27 percent
still trade in their original form.
Best-performing 1987 IPOs
Fastenal Corp. (FAST): offered at $9 in August 1987, and up 7,041 percent
HealthCare Compare Corp. (HCCC): offered at $11 in May 1987, and up 2,204
Charles Schwab Corp. (SCH): offered at $16.50 in September 1987. Up 2,147
percent over the past 10 years.
Agouron Pharmaceuticals Inc. (AGPH): offered at $10 in March 1987. Up 1,940
-- Bambi Francisco
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