NEW YORK (CNNfn) - After taking a pounding during the last six months of 2000, the market for initial public offerings is not expected to rush out of the starting gate in January. Instead, analysts see a market that slowly creeps back to life, with some "old economy" names and promising biotechnology firms leading the way.|
The new issues market ground to a halt during the fourth quarter amid the technology sell-off, overall market volatility and the uncertainty over the presidential election.
IPOs set a record pace during the first quarter of 2000, when 141 companies went public, nearly doubling 1999's total of 72 new issues. Analysts expect a much quieter market next year.
"I don't think the market will burst back," said Joe Hammer, head of capital markets at Adams Harkness & Hill. "It will take its time in the first quarter. This won't be a repeat of last year."
There are currently 147 companies registered with the Securities and Exchange Commission to go public, in deals worth a total of $18.1 billion. That's a 10 percent decline from December 1999, when 164 companies were in registration, hoping to raise $18.8 billion, according to CommScan, a New York-based investment banking research firm.
New issues will not get into full gear until the end of March, Hammer said. Most companies will be tending their books in January and won't be able to file with the SEC until the end of the month.
Analysts say that biotech, one of the few bright spots in the IPO market last year, will again be in the forefront next year, with 16 biotech-related deals in registration.
"Biotech is going to continue to be a good market," said Hammer, of Adams Harness.
Unlike most stocks, the biotech sector was helped by broad market volatility in 2000, said Jim McCamant, editor of the Medical Technology Stock Letter. Biotech stocks sold off somewhat following a bull run earlier this year, but that means there are more opportunities now to buy into the sector, he said.
"When biotechs were up 150 percent that didn't leave a lot of room," McCamant said. "By having a good correction, the companies are off their highs and we will [now] see investors get interested."
Investors are awaiting the IPO of Athersys Inc., a Cleveland-based company that has developed technology to scan the entire human genome and find proteins with specific biological functions. The company has created technology to create synthetic human chromosomes that will be used in gene therapy to treat diseases.
"This is supposed to be breakthrough technology," said analyst George Nichols, of Morningstar.com.
Analysts say selected technology IPOs, particularly networking firms that provide the "plumbing" for the Internet, will play a substantial role in the new issues market next year. But don't expect techs to dominate the way they have for the past few years, said analyst Steve Tuen, of IPO Value Monitor.
"Techs will still be around for IPOs but it won't be as unbalanced as it was before," he said. "There are a lot of companies that need to raise capital for new ideas."
One company that could produce a good pop is Riverstone Networks Inc., which supplies Internet infrastructure equipment, such as routers and switches, to service providers.
Wall Street also is watching the expected IPO of Loudcloud Inc., the latest vehicle from Netscape co-founder Marc Andreessen. Only a year old, the Sunnyvale, Calif.-based start-up provides Web-hosting services that allow companies to focus on running their businesses rather than maintaining their Internet infrastructure.
Some "old economy" companies turned out to be some of the biggest winners in last year's IPO market. Krispy Kreme Doughnuts Inc. went public in April, surging nearly 50 percent in its first day, while leather goods retailer Coach Inc. (COH: Research, Estimates) gained 27 percent in its October debut.
Analysts say the stage is now set for Kraft, a unit of Philip Morris Co. Inc. (MO: Research, Estimates). Philip Morris is selling a minority stake in the food maker, and the deal, expected in the first half of 2001, could raise from $5 billion to $10 billion, analysts said.
"This is going to be a big one," said Richard Peterson, market strategist at Thomson Financial Securities Data. "This could be one of the biggest non-tech offerings ever."
The Kraft deal will be noteworthy because of its size, but it isn't expected to mimic the one-day success of Krispy Kreme. "Kraft will not be another Krispy Kreme because it is too mature of a business to get the type of performance that Krispy Kreme did," said IPO Value Monitor's Tuen.
Insurance IPOs opened to little fanfare in 2000 but generated some of the strongest after-market performances. MetLife (MET: Research, Estimates), the nation's second-largest life insurer, gained 3.5 percent in its first day but subsequently more than doubled. While John Hancock Financial Services Inc., (JHF: Research, Estimates) (JHF: Research, Estimates), the 13th-largest life insurer, rose 4.4 percent in its debut but has since jumped 117 percent.
Now another insurer, Prudential Insurance Co. of America, has voted to demutualize and plans to launch its own public offering in the 2001 fourth quarter. Insurers Principal Financial Group and Phoenix Home also are expected to go public next year.
Wireless deals had a rough ride in 2000. The IPO from AT&T Wireless (AWE: Research, Estimates) flooded the once-reliable wireless sector, causing valuations to fall. Analysts expect the huge offering from Bedminster, N.J.-based Verizon Wireless to get off the ground next year but hopes are dim for any substantial premium.
Verizon Communications, parent of the wireless unit, planned to price the $5 billion IPO in September but the deal was delayed due to market conditions.
The offering from Nextel International is also slated to begin trading in 2001. Reston, Va.-based Nextel International, a unit of wireless provider Nextel Communications, has wireless operations and investments in Canada, Japan, Brazil, Mexico, Argentina, Peru, Chile and the Philippines.
The alternative energy sector emerged as a powerhouse during the mid-part of the year but faded during the broad market downturn in the fourth quarter.
Cambridge, Mass.-based Nuvera Fuel Cells Inc. may produce some heat in 2001, analysts said. Nuvera develops fuel cell processors and fuel systems that it says are environmentally cleaner, quieter and more efficient than conventional generation.